The  House  of 
Protection 


Griffin  M,  Lovelace 


UC-NRLF 


SB    57T    773 


Harper's  Life  Insurance  Library 


THE  HOUSE  OF  PROTECTION 


Harper  s  Life  Insurance  Library 

Edited  by  Dr.  John  A.  Stevenson,  formerly  Director  of 
the  School  of  Life  Insurance  Salesmanship,  Carnegie  Insti- 
tute of  Technology  and  Griffin  M.  Lovelace,  Director  of 
the  School  of  Life  Insurance  Salesmanship,  Carnegie  Insti- 
tute of  Technology. 

MEETING  OBJECTIONS  By  John  A.  Stevenson 

Price  $1.60  Postpaid 

THE  HOUSE  OP  PROTECTION          By  Griffin  M.  Lovelace 
Price  $1.60  Postpaid 

PRINCIPLES  OF  LIFE  INSURANCE    By  Griffin  M.  Lovelace 
(In  preparation) 

FUNCTIONS  OF  LIFE  INSURANCE     By  Griffin  M.  Lovelace 
(In  preparation) 

THE  PSYCHOLOGY  OF  SELLING  LIFE  INSURANCE 

(In  preparation)  By  E.  K.  Strong 

PRACTICAL  METHODS  OF  SELLING  LIFE  INSURANCE 

(In  preparation)  By  John  A.  Stevenson 

INHERITANCE  TAX  By  Franklin  W.  Ganse 

(In  preparation) 

Harper  &  Brothers  Publishers 

Established  1817 


HARPER'S  LIFE  INSURANCE  LIBRARY 

Edited  By 
John  Alford  Stevenson  and  Griffin  M.  Lovelace 


The 
HOUSE  OF  PROTECTION 

BY 

GRIFFIN  M.  LOVELACE 

DIRECTOR   OF   THE    SCHOOL   OP   LIFE   INSURANCE 
SALESMANSHIP   AT   THE   CARNEGIE   INSTI- 
TUTE   OF    TECHNOLOGY 


Endorsed  by 

THE  NATIONAL  ASSOCIATION  OF 
LIFE   UNDERWRITERS 


HARPER  &    BROTHERS   PUBLISHERS 

NEW    YORK    AND    LONDON 


THE  HOUSE  OF  PROTECTION 


Copyright,  1921,  by  Harper  &  Brothers 
Printed  in  the  United  States  of  America 


This  book  is  dedicated  to  those  life  under- 
writers who  are  guided  in  their  work  by 
an  earnest  desire  to  help  husbands  and 
fathers  with  one  of  their  greatest  problems; 
viz.,  to  guarantee,  after  their  death,  living 
expenses  to  their  wives  and  children. 


I  t *;/ 


CONTENTS 
Part  I 

CHAP.  PAGE 

PREFACE ix 

I.  ONLY  BRICK  AND  MORTAR 3 

II.  BUILDING  ON  THE  SAND 11 

III.  AUTHORITATIVE  EXAMPLE  AND  ADVICE   ...  75 

IV.  SUPERIORITY  OF  LIFE-INSURANCE  MANAGEMENT 

OF  BENEFICIARIES'  FUNDS 83 

V.  SUMMARY  OF  ADVANTAGES  OF  INCOME  SETTLE- 

MENTS      91 

VI.  A  PICTURE  OF  LIFE-INSURANCE  SERVICE     .     .  97 

VII.  THE  HOUSE  OF  PROTECTION 107 

Part  II 

I.      How  MUCH  LIFE  INSURANCE  SHOULD  I  CARRY?  Ill 


PREFACE 

THE  purpose  of  this  book  is  to  answer 
two  questions:  (1)  "How  can  I  make  sure 
that  my  life  insurance  will  provide  the  pro- 
tection which  I  desire?"  and  (2)  "How 
shall  I  determine  the  amount  of  life  in- 
surance I  should  carry ?" 

Both  questions  are  of  vital  importance 
to  every  husband  and  father;  yet  there 
are  comparatively  few  men  who  have 
solved  either  problem  satisfactorily.  Per- 
haps the  following  pages  may  be  of  assist- 
ance both  to  life  underwriters  and  to 
clients  by  pointing  out  a  very  simple  way 
of  arriving  at  the  correct  amount  of  in- 
surance required  in  a  given  case  and  by 
making  clear  the  necessity  of  using  in- 
come settlements  as  the  only  means  of 
guaranteeing  the  fulfillment  of  the  in- 
sured's  plans  to  provide  living  expenses 
for  his  family. 

The  author  wishes  to  thank  cordially 


PREFACE 

the  many  persons  who  have  helped  him 
by  encouragement  and  suggestion — espe- 
cially the  Carnegie  Tech  students — and 
those  who  have  assisted  in  the  revision  of 
the  manuscript.  It  would  be  difficult  to 
express  adequately  his  debt  to  his  friend 
and  former  colleague,  Dr.  John  A.  Steven- 
son, for  the  generous  and  helpful  co-opera- 
tion which  he  has  given  at  all  times. 

G.  M.  L. 

CARNEGIE  INSTITUTE  OF  TECHNOLOGY, 
PITTSBURGH,  PENNSYLVANIA. 
June  1, 1921. 


PART  I 

I 

ONLY  BRICK  AND   MORTAR 

"  A  great  Estate  left  to  an  Heir  is  as  a  Lure  to  all 
the  Birds  of  Prey  round  about  to  seize  upon  him,  if 
he  be  not  the  better  stablished  in  Years  and  Judg- 
ment."— LOBD  BACON. 


THE 
HOUSE  OF  PROTECTION 

I 

ONLY  BRICK  AND   MORTAR 

OTRANGE  as  it  may  seem,  it  is  a  fact 
O  that  the  average  husband,  or  father, 
has  no  definite  idea  of  how  his  life  insurance 
is  to  support  his  wife  and  children.  In  a 
vague  way  he  thinks  that  he  has  provided 
for  them  in  the  event  of  his  premature 
death.  He  cheerfully  undertakes  to  de- 
posit premium-savings,  even  as  long  as  he 
lives,  in  order  to  secure  this  provision,  per- 
haps making  great  sacrifices  in  the  effort 
to  carry  out  his  plan,  and  he  feels  a  deep 
satisfaction  at  the  thought  that  his  family 
is  "protected."  But  how  are  they  pro- 
tected? Indeed,  what  is  "protection"? 
According  to  the  dictionary,  protection 


V'      THE  HOUSE  OF  PROTECTION 

is,  of  course,  that  which  protects — i.e., 
which  saves  or  keeps  from  harm. 

What  is  the  danger  or  harm  from  which 
life  insurance  is  intended  to  shield  a  man's 
wife  and  children  after  his  death? 

It  is  the  lack  of  food,  shelter,  clothing, 
medical  care,  education,  and  reasonable 
comforts,  either  for  life  or  for  a  specified 
period. 

Does  life  insurance,  as  it  is  arranged 
in  the  average  case,  really  protect  the 
beneficiaries  against  the  lack  of  the  neces- 
saries and  reasonable  comforts  of  life  to 
such  an  extent  and  for  such  a  period  as 
the  insurance  premiums  are  capable  of 
providing?  Unfortunately,  there  is  no 
doubt  as  to  the  answer  to  this  question. 
It  is  emphatically  "no."  The  average 
man  is  not  actually  guaranteeing  protec- 
tion to  his  family,  as  he  thinks  he  is. 

Suppose  you  went  to  a  building  con- 
tractor and  said,  "I  want  you  to  build  me 
a  house." 

" What  kind  of  a  house?" 

"Well,"  you  say,  "a  Colonial,  brick 
house,  with  ten  rooms,  three  baths,  and 
a  sun  porch,  slate  roof,  hardwood  trim 


THE  HOUSE  OP  PROTECTION         5 

and  floors,  open  plumbing,  and  hot-water 
heat." 

Some  time  later  he  calls  you  on  the 
telephone  and  says,  "I'll  drive  you  out  to 
look  at  your  new  house." 

You  motor  out  to  a  beautiful  section  of 
the  city  and  stop  in  the  midst  of  a  group 
of  handsome  homes.  The  contractor  says: 
"Here's  your  house.  Just  what  you  or- 
dered." But  you  are  puzzled.  There 
isn't  any  house  opposite  the  place  where 
you  have  parked  the  car. 

"Where  is  my  house?"  you  ask. 

"Right  here,"  he  answers,  pointing  at 
the  lot  before  which  you  have  stopped. 

"But  there  isn't  any  house  there,"  you 
exclaim,  in  amazement.  "There  is  noth- 
ing on  that  lot  but  a  heap  of  bricks,  bar- 
rels of  lime,  lumber,  kegs  of  nails,  building 
hardware,  slate  shingles,  plumbing  sup- 
plies, and  cans  of  paint." 

"Well,  I  call  that  a  house,"  says  the 
builder. 

"A  house!"  you  exclaim.  "Why,  that 
is  only  the  material  out  of  which  a  house 
may  be  built." 

Life-insurance  money  left  in  a  lump  sum 


6          THE  HOUSE  OP  PROTECTION 

is  not  protection.     The  lump  sum  is  only  the 
brick  and  mortar  of  the  House  of  Protection. 

And  yet  every  day,  all  up  and  down  this 
country,  life-insurance  policies,  intended 
to  furnish  permanent  support  for  widows 
and  children,  are  being  written  with  lump- 
sum  settlements,  and  men  are  saying  to 
themselves  with  satisfaction,  "I  have  pro- 
vided my  family  protection  in  event  of  my 
premature  death/7 

But  have  we  really  secured  "  protection  " 
for  our  families  when  we  arrange  for  a 
policy  of  $10,000  or  $50,000  or  $100,000, 
payable  in  a  lump  sum?  Possibly — but 
not  certainly — not  even  probably. 

A  lump  sum  furnishes  merely  that  which 
may  possibly  secure  permanent  protection 
— not  will,  but  may.  A  lump  sum  will 
provide  permanent  protection  if  it  is  in- 
vested and  reinvested  throughout  the  life- 
time of  the  beneficiary  in  such  a  way  that 
the  money  is  always  safe  and  always  pro- 
duces a  fair  rate  of  interest  or  profit. 
But  the  husband,  or  father,  cannot  be 
assured  that  his  widow  will  be  able  to 
invest  the  money  safely  and  profitably 
throughout  her  lifetime. 


THE  HOUSE  OF  PROTECTION          7 

In  providing  a  cash  settlement  we  have 
furnished  only  the  brick  and  mortar  of 
the  House  of  Protection.  To  build  the 
House  of  Protection  is  left  to  our  bene- 
ficiaries. 


II 

BUILDING  ON  THE  SAND 

...  a  foolish  man,  which  built  his  house  upon 
the  sand; 

And  the  rain  descended,  and  the  floods  came, 
and  the  winds  blew,  and  beat  upon  that  house; 
and  it  fell;  and  great  was  the  fall  of  it. 

— MATTHEW  vii:  26,  27. 


II 

BUILDING   ON   THE   SAND 

SO  many  beneficiaries  fail  to  build  a 
House  of  Protection  out  of  the  mate- 
rials bequeathed  to  them.  It  is  a  difficult 
task.  They  are  not  trained  in  this  highly 
specialized  kind  of  work.  It  is  no  won- 
der, therefore,  that  they  fail  at  the  most 
vital  point  in  their  construction — at  the 
foundation. 

The  House  of  Protection  must  be  built 
upon  a  foundation  so  strong  and  deep 
that  it  cannot  be  shaken  or  destroyed  by 
investment  storms. 

The  beneficiary  doesn't  understand  this; 
and,  though  she  be  ever  so  conscientious, 
she  may,  through  ignorance,  build  her 
house  upon  the  sand.  Or  she  may  be 
venturesome  and  say:  "I'll  take  a  chance. 
Ill  build  my  house  upon  the  sand  and 
perhaps  no  winds  or  floods  will  come  my 
way."  Occasionally  she  wins — the  winds 


12        THE  HOUSE  OF  PROTECTION 

and  the  floods  chance  not  to  come  her 
way. 

But  too  often  her  house  stands  in  the 
path  of  the  storm  and  is  wrecked  beyond 
repair. 

•       •••••., 

What  are  some  of  the  specific  things 
that  may  happen  to  the  lump  sum  and 
destroy  the  protection  which  the  husband 
or  father  thought  he  had  secured  to  his 
family? 

Living  on  the  Principal 

When  the  husband,  or  father,  dies,  the 
beneficiary  receives  a  check  from  the 
"Home  Office"  of  the  life  insurance  com- 
pany and  deposits  it  in  her  bank.  She 
settles  outstanding  bills  by  checking  on 
the  account,  and  then,  if  she  understands 
that  the  money  should  be  invested  care- 
fully, she  waits,  seeking  the  right  place 
for  it.  Thus,  the  insurance  funds  do  not 
begin  to  earn  interest  immediately,  but 
lie  idle  in  the  bank  and  are  checked  against 
from  week  to  week,  or  month  to  month, 
in  order  to  meet  current  expenses.  The 


THE  HOUSE  OF  PROTECTION        13 

widow  may  not  realize  the  importance 
of  putting  her  capital  to  work.  She  has 
such  a  lot  of  money  in  the  bank,  more, 
perhaps,  than  her  husband  ever  had  in 
his  bank  account;  it  may  not  occur  to 
her  that  her  money  will  ever  give  out.  It 
is  such  an  easy  way  to  live;  and  many  a 
beneficiary  has  gone  on  in  this  manner, 
spending  at  the  old  rate,  as  long  as  the 
money  lasted,  instead  of  investing  and 
using  only  the  income.  Perhaps  she  is 
afraid  to  invest  her  money,  and  so  lives 
from  month  to  month,  or  even  from  year 
to  year,  drawing  on  her  capital  until  it 
is  materially  impaired  or  even  exhausted. 

Where  Shall  She  Invest  Her  Money  f 

The  widow  may  understand  the  im- 
portance of  putting  her  money  to  work 
immediately  in  order  that  she  may  receive 
an  income  from  it.  How  is  she  to  invest 
it  safely  as  well  as  profitably?  Can  you 
imagine  the  anxiety  with  which  she  faces 
this  problem?  And  well  she  may,  for 
she  has  had  little  or  no  experience  in  in- 
vesting money.  What  funds  she  and  her 


14        THE  HOUSE  OF  PROTECTION 

husband  had  were  always  managed  by 
him  personally;  and  she  probably  remem- 
bers that  sometimes  his  investments  were 
not  successful.  If  she  knew  how  few  men, 
even  of  long  business  experience,  are  able 
to  invest  and  reinvest  money  over  a  long 
period  of  time  without  loss,  she  would  be 
even  more  anxious  than  she  is.  If  she 
knew  that  nearly  every  rich  man  leaves  a 
lot  of  worthless  securities  at  his  death, 
she  would  feel  even  more  keenly  that  she 
is  burdened  with  a  very  grave  responsi- 
bility, a  greater  financial  responsibility 
than  her  husband  ever  assumed;  for  he  was 
never  obliged  to  depend  for  his  living  upon 
his  success  in  keeping  a  restricted  amount 
of  money  permanently  invested  with  safety 
and  profit. 

Among  the  first  to  offer  assistance  in 
her  dilemma  may  be  relatives  or  friends; 
and  if  she  gets  advice  from  several  of  them, 
she  will  be  surprised  to  see  how  thor- 
oughly they  disagree  as  to  what  is  "the 
only  thing  "  for  her  to  do  with  her  money. 
Even  if  every  one  of  them  is  sincere  in 
wishing  to  be  of  real  assistance  to  her, 
how  is  she  to  know  which  suggestion  to 


THE  HOUSE  OF  PROTECTION        15 

accept  or  that  any  one  of  them  is  safe  to 
follow? 

Some  years  ago  The  World's  Work  pub- 
lished an  article  entitled  "The  Lady  and 
Her  Legacy/'  which  told  the  story  of  a 
woman  who  sought  advice  for  the  invest- 
ment of  an  inheritance  of  $10,000.  She 
first  tried  to  place  the  money  in  the  sav- 
ings bank,  which  refused  to  take  so  large 
a  sum.  Then  she  called  on  her  clergy- 
man, who  advised  her  to  invest  in  the 
bonds  of  a  boys'  school  for  which  he  was 
trying  to  raise  funds  for  a  new  building. 
Next  she  was  advised  by  her  uncle  to  put 
one  half  of  her  money  in  local  real  estate 
and  the  other  half  in  four  well-known 
copper  mines.  A  second  cousin,  a  maiden 
lady,  advised  her  to  "give  one  tenth  to  the 
Lord,"  but  offered  no  suggestion  for  the 
other  nine  tenths.  An  elderly  man,  a 
close  friend  of  her  father's,  recommended 
cotton-mill  stocks.  She  answered  the  ad- 
vertisement of  a  "banking"  house  which 
advertised  in  her  church  paper,  and  re- 
ceived a  great  quantity  of  mail  suggesting 
investments  concerning  which  she  wrote 
to  a  financial  journal,  which  warned  her 


16        THE  HOUSE  OF  PROTECTION 

not  to  buy.  Fortunately,  she  went  at 
last  to  the  president  of  a  bank,  who  gave 
her  good  advice,  which  she  followed.  But 
many  women  would  have  parted  with 
their  money  before  they  reached  the  bank 
president. 

Loaning  to  Relatives 

Relatives  are  not  always  disinterested. 
Sometimes  they  offer  to  take  the  insurance 
money  and  invest  it  in  their  own  business 
or  in  some  enterprise  in  which  they  are 
"going  to  make  a  lot  of  money. "  The 
author  recalls  a  case  in  which  a  policy 
was  paid  to  the  wife  of  a  young  man  who 
died  shortly  after  he  was  insured.  When 
the  widow  was  notified  that  the  insurance 
check  had  arrived,  she  appeared  in  the 
life-insurance  office,  accompanied  by  her 
brother.  The  agent  started  to  give  her 
the  check,  but  the  brother  put  out  his 
hand  to  take  it.  When  the  agent  hesi- 
tated and  looked  from  one  to  the  other, 
questioningly,  the  brother  said,  "My  sister 
wants  to  invest  her  money  immediately 
and  knows  how  hard  it  is  to  find  a  good 


THE  HOUSE  OF  PROTECTION        17 

investment.  Fortunately  for  her,  I  was 
just  on  the  point  of  borrowing  money  to 
put  into  my  business,  and  I  have  offered 
to  help  her  out  by  borrowing  from  her 
and  paying  her  a  good  rate  of  interest." 
We  know  that,  as  a  rule,  such  loans  to 
relatives  prove  to  be  unsafe  for  the  widow 
and  her  children. 

A  widow  whose  husband  had  left  her 
a  substantial  amount  of  insurance  went 
with  her  little  children  to  live  in  her 
father's  home.  The  father  was  an  in- 
ventor, who  had  always  earned  a  good 
income,  but  had  never  succeeded  in  mak- 
ing any  of  his  inventions  pay  in  a  large 
way.  His  best  patents  had  always  been 
sold  to  manufacturers,  while  those  in 
which  he  had  a  royalty  had  not  yielded 
large  profits. 

At  the  time  of  his  son-in-law's  death 
he  had  just  perfected  an  invention  which 
seemed  to  him  to  promise  greater  success 
than  any  other  device  he  had  ever  patented. 
He  had  decided  to  manufacture  the  article 
himself,  hoping  to  secure  all  profits  to 
himself  and  make  enough  money  so  that 
he  might  retire,  for  his  health  was  no 


18        THE  HOUSE  OF  PROTECTION 

longer  good.  He  had  very  little  capital 
and  almost  no  credit  on  a  commercial 
scale.  All  possibilities  of  help  were  just 
about  exhausted  when  his  son-in-law  died 
and  his  daughter  took  her  children  and 
"went  home"  to  live,  as  so  many  women 
do  after  their  husbands'  deaths. 

It  may  have  occurred  to  the  father  that, 
if  his  daughter  would  lend  him  her  insur- 
ance money,  he  could  go  ahead  with  his 
plans;  but  he  never  mentioned  this  idea 
to  her.  Although  he  had  faith  in  his 
invention,  he  doubtless  realized  that  the 
money  left  for  the  support  of  his  daughter 
and  grandchildren  was  not  to  be  risked 
in  such  an  enterprise  as  his.  But  his  wife 
thought  differently.  She  urged  him  to 
speak  to  their  daughter,  and,  when  he 
refused,  did  so  herself.  The  idea  appealed 
strongly  to  the  daughter,  who  was  devoted 
to  her  father.  She  went  to  him,  insisted 
that  he  allow  her  to  invest  in  his  com- 
pany, and,  when  he  at  first  refused,  was 
deeply  offended.  In  the  end  he  yielded. 
Thirty  thousand  dollars  of  the  money  her 
husband  had  left  her  went  into  the  new 
venture,  which  failed.  Her  father  was  a 


THE  HOUSE  OF  PROTECTION        19 

skillful  inventor,  but  not  a  manufacturer 
or  a  business  man. 

One  of  the  best  insurance  men  in  the 
country  told  the  author,  some  years  ago, 
of  a  conversation  he  had  with  his  wife 
during  the  evening  of  the  day  on  which 
he  had  arranged  for  the  first  time  to  have 
some  of  his  insurance  settled  on  an  income 
plan.  They  sat  in  their  living  room, 
where  their  little  ones  were  playing  on  the 
floor.  Finally  he  said,  "My  dear,  I  want 
you  to  understand  that,  in  arranging  this 
income  settlement,  I  am  merely  trying  to 
guard  you  against  every  possible  thing 
which  might  bring  any  risk  of  your  losing 
the  little  I  can  provide  for  you  and  the 
children.  As  an  example,  suppose  that 
our  boy  there  were  grown  up  and  doing 
well  in  business  and  that  an  opportunity 
came  to  him  to  start  in  business  for  him- 
self, or  to  buy  an  interest  in  some  busi- 
ness; the  essential  thing  would  be  to  find 
capital.  Being  young,  he  would  not  have 
had  time  to  accumulate  very  much  or  to 
establish  much  credit;  and  what  would 
be  more  natural  than  that  he  should  come 
to  you  and  that  you  should  put  some  of 


20        THE  HOUSE  OP  PROTECTION 

your  capital  into  his  venture?  He  would 
have  great  confidence  in  his  scheme,  and 
you  would  have  confidence  in  him;  if  his 
mother  wouldn't,  who  would?  You  might 
even  feel  that  you  wanted  to  be  a  real 
partner  in  his  first  business  undertaking. 
Considering  the  limited  size  of  your  cap- 
ital and  the  needs  of  yourself  and  the 
other  children,  it  would  be  most  unwise 
to  lend  our  boy  the  money.  But  could 
you,  would  you,  refuse  to  help  him? 
Probably  not.  And  I  want  to  arrange 
things  in  such  a  way  that  there  can  be  no 
struggle  between  the  maternal  instinct 
and  your  judgment,  and  so  that  the  boy 
will  know  you  have  no  funds  to  put  into 
his  schemes.  If  I  live  long  enough  and 
prosper,  I  can  help  him,  too.  But  the 
insurance  I  now  have  is  for  the  very  defi- 
nite purpose  of  guaranteeing  you  a  living 
as  long  as  you  live  and  of  enabling  you 
to  keep  the  family  together  and  give  the 
children  a  good  education. " 

That  man  was  a  wise  father.  He  knew 
from  what  he  had  seen  of  the  working  out 
of  life-insurance  plans  that  even  those 
who  are  nearest  and  dearest  to  one's  wife 


THE  HOUSE  OF  PROTECTION       21 

may  be  the  cause  of  the  loss  of  the  lump 
sum  or  cash  settlement. 


Why  Little  Dorrit  Lost  a  Legacy 

A  passage  from  Charles  Dickens's  won- 
derful story,  Little  Dorrit,  well  illustrates 
the  fact  that  women  are  likely  to  be  easily 
influenced  to  part  with  their  money  by 
persons  for  whom  they  feel  a  deep  affec- 
tion— "say,  a  brother,  a  father,  say,  a 
husband/'  as  the  turnkey  puts  it.  The 
reader  will  recall  that  Little  Dorrit's 
father  was  confined  for  debt  in  the  Mar- 
shalsea  Prison,  that  Little  Dorrit  was  born 
and  grew  up  there,  and  that  the  turnkey 
became  her  godfather. 

"In  those  early  days  the  turnkey  first 
began  profoundly  to  consider  a  question 
which  cost  him  so  much  mental  labor  that 
it  remained  undetermined  on  the  day  of 
his  death.  He  decided  to  will  and 
bequeath  his  little  property  of  savings  to 
his  godchild  and  the  point  arose  how  it 
could  be  so  Hied  up'  that  only  she  should 
have  the  benefit  of  it.  His  experience 
on  the  lock  gave  him  such  an  acute  per- 

3 


22        THE  HOUSE  OF  PROTECTION 

ception  of  the  enormous  difficulty  of 
Hying  up'  money  with  any  approach  to 
tightness,  and  contrariwise  of  the  remark- 
able ease  with  which  it  could  get  loose, 
that  through  a  series  of  years  he  regularly 
propounded  the  knotty  point  to  every 
new  insolvent  agent  and  other  professional 
gentleman  who  passed  in  and  out. 

'"  Supposing/  he  would  say,  stating 
the  case  with  his  key  on  the  professional 
gentleman's  waistcoat — '  supposing  a  man 
wanted  to  leave  his  property  to  a  young 
female  and  wanted  to  tie  it  up  so  that 
nobody  else  could  ever  be  able  to  make  a 
grab  at  it,  how  would  you  tie  up  that 
property?7 

'"Settle  it  strictly  on  herself/  the  pro- 
fessional gentleman  would  complacently 
answer. 

"'But  look  here/  quoth  the  turnkey, 
'supposing  she  had,  say,  a  brother,  a 
father,  say,  a  husband,  who  would  be 
likely  to  make  a  grab  at  that  property 
when  she  came  into  it — how  about  that?' 

'"It  would  be  settled  on  herself  and  they 
would  have  no  more  legal  claim  on  it  than 
you/  would  be  the  professional  answer. 


THE  HOUSE  OF  PROTECTION        23 

"'Stop  a  bit/  said  the  turnkey.  'Sup- 
posing she  was  tender  hearted  and  they  came 
over  her.  Where  is  your  law  for  tying  it  up 
then?' 

"The  deepest  character  whom  the  turn- 
key sounded  was  unable  to  produce  his 
law  for  tying  such  a  knot  as  that." 

This  quotation  from  Little  Dorrit  reminds 
us  that  the  problem  we  are  discussing  is 
by  no  means  new.  So  does  the  selection 
from  Lord  Bacon  in  the  front  of  this  book. 
No  doubt  a  thorough  search  in  ancient 
literature  would  disclose  passages  con- 
firming our  belief  that  this  is  a  problem 
as  old  as  civilization  itself. 

Helping  Needy  Relatives 

There  is  nearly  always  some  member  of 
the  beneficiary's  family  who  is  in  trouble 
and  needs  money.  The  widow's  father 
or  mother  or  a  sister  may  be  in  great  need 
of  help.  Perhaps  one  of  them  is  ill  and 
should  have  surgical  attention  or  a  change 
of  climate;  or  they  may  have  accumulated 
debts  which  are  pressing  and  which  make 


24        THE  HOUSE  OF  PROTECTION 

them  all  unhappy,  including  the  widowed 
daughter,  or  sister,  herself.  A  mortgage 
on  the  old  home,  with  an  accumulation 
of  unpaid  interest,  may  threaten  fore- 
closure and  loss  of  the  family  hearthstone 
with  all  its  old  associations.  How  can 
the  widowed  daughter,  or  sister,  with 
$5,000,  or  $10,000,  or  $20,000  of  insurance 
money  in  the  bank  view  such  distress 
among  her  loved  ones  and  not  help  them? 
Even  though  she  realizes  that  this  money 
was  provided  for  the  specific  purpose  of 
furnishing  living  expenses  for  herself  and 
her  children,  is  it  strange  that  she  yields 
to  her  good  impulses  and  goes  to  the 
rescue? 

A  Seattle  life  underwriter  gives  an  ac- 
count of  a  widow  who  disbursed  the 
greater  part  of  her  money  to  members  of 
her  family  and  of  the  family  of  her  hus- 
band, at  whose  death  she  had  received 
$50,000  of  insurance  in  a  single  sum. 
Apparently  she  had  no  idea  of  the  value 
of  money;  for  she  first  gave  $10,000  to 
her  father  and  mother,  then  $10,000  to 
her  husband's  father  and  mother,  and 
loaned  $10,000  to  her  brother-in-law,  with- 


THE  HOUSE  OF  PROTECTION        25 

out  security  of  any  kind,  not  even  a  per- 
sonal note  or  receipt  for  the  money.  These 
acts  of  generosity  were  followed  by  an 
orgy  of  shopping.  She  bought  beautiful 
fur  coats  and  silk  clothes,  rented  a  fine 
flat  and  purchased  an  automobile. 

Eleven  months  after  her  husband's  death 
she  had  only  $12,000  left  out  of  the  $50,000 
which  her  husband  had  provided.  Yet 
when  he  bought  the  insurance  he  probably 
thought  he  had  secured  "protection" 
for  his  wife. 

Are  Good  Investments  Permanently  Safe? 

However,  there  may  be  no  such  dangers 
as  those  just  mentioned.  The  widow 
may  have  good  judgment,  and  she  may 
go  to  persons  capable  of  giving  good 
advice  and  place  her  money  in  good 
investments.  Is  her  money  safe  then? 
No  doubt  it  is  safe  temporarily.  But  let 
us  observe  her  investment  through  several 
years. 

Suppose  she  bought  real  estate.  Have 
real-estate  values  changed?  Yes,  some  real 
estate  has  gone  up;  some  has  depreciated 


26        THE  HOUSE  OF  PROTECTION 

in  market  value,  and  she  happens  to  have 
her  money  in  the  latter.  Ten  years  ago, 
when  she  bought  this  little  apartment 
house,  it  was  in  a  fine  section  of  the  city. 
But  there  has  been  a  new  real-estate  devel- 
opment. People  are  now  buying  in 
another  direction;  a  grocery  store  has 
been  started  next  door  and  a  big  garage 
put  up  across  the  street.  Desirable  ten- 
ants are  moving  away.  Rental  prices 
are  going  down.  Her  income  shrinks. 
She  thinks  of  selling,  but  the  sale  price 
is  down  also. 

Or  suppose  she  lives  in  a  nice,  clean 
little  New  England  village.  Twenty  years 
ago  her  husband  died.  She  deposited  her 
insurance  check  in  the  bank  and  went  to 
talk  with  two  leading  citizens.  Both  of 
them  have  made  money  and  have  money. 
Nothing  succeeds  without  them  and  every- 
thing they  touch  prospers.  Both  are 
absolutely  honest.  Both  are  her  friends; 
they  loved  her  husband  and  would  do  for 
his  widow  as  for  their  own  children. 

"What  shall  I  do  with  my  money?" 
she  asks. 

They  think  the  matter  over  carefully, 


THE  HOUSE  OF  PROTECTION        27 

then  discuss  it,  and  find  they  agree  on 
two  well-known  railroad  stocks.  No  other 
investment  seems  to  meet  so  satisfactorily 
the  necessary  combination  of  safety  and 
profit.  All  through  the  East  conservative 
estates  hold  some  of  these  stocks.  Re- 
liable financial  corporations  hold  large 
blocks  of  them.  Bankers  recommend 
them.  They  seem  as  sound  as  anything 
can  be. 

Time  goes  by  and  the  advice  of  her 
friends  seems  to  have  been  good.  She  re- 
ceives high  dividends.  The  market  price 
remains  satisfactory.  Nearly  every  one 
with  whom  she  discusses  her  investment 
compliments  her.  Then  there  are  whis- 
perings. The  confidence  of  investors  seems 
to  have  been  shaken.  Stock  exchange 
quotations  go  down.  There  are  newspaper 
accounts  of  financial  difficulties.  Finally 
a  dividend  is  passed  and  her  income  suffers. 
As  this  sentence  is  being  written,  these 
stocks  are  both  quoted  at  less  than  $20, 
and  haven't  paid  a  dividend  in  several 
years. 

At  the  time  the  financial  difficulties  of 
these  companies  became  known,  a  promi- 


28        THE  HOUSE  OF  PROTECTION 

nent  newspaper  commented  substantially 
as  follows:  "For  years  frugal  people  have 
been  putting  their  savings  into  these 
stocks.  When  a  New  Englander  in  active 
business  wanted  to  lay  aside  money  to 
protect  his  family  in  case  of  financial  mis- 
fortune, he  was  very  apt  to  put  it  into  the 
stock  of  one  or  both  of  these  roads.  How 
real  a  thing  the  interest  of  '  widows  and 
orphans7  in  these  companies  has  become 
is  shown  by  the  following  figures: 

"One  company  has  about  twenty-four 
thousand  stockholders.  Of  this  number 
58.9  per  cent  are  women,  or  trusts  or 
guardianships  for  women  or  children.  The 
other  company  has  over  eight  thousand 
stockholders;  of  these  62.2  per  cent  are 
women  and  children. 

"When  corporations  like  these  get  into 
serious  financial  difficulties,  the  number 
of  people  affected  is  very  large.  The 
worry  and  loss  suffered  by  many  thou- 
sands of  women  as  a  result  of  the  shrink- 
age of  value  in  these  stocks  is  perhaps  the 
worst  feature  of  what  has  been  in  many 
years  one  of  the  most  amazing  chapters  in 
the  history  of  American  high  finance/' 


THE  HOUSE  OF  PROTECTION        29 

In  the  monthly  publication  of  a  promi- 
nent life  insurance  company,  one  of  its 
actuaries  tells  of  a  fund  of  $31,500  which 
was  invested  in  150  shares  of  one  of  the 
above-mentioned  companies  in  1901  at 
$210  a  share.  The  total  earnings  paid  in 
the  20  years  which  have  elapsed  amount 
to  $18,496.95  (including  the  sale  of  some 
rights).  A  similar  sum  left  on  deposit  by 
a  beneficiary  at  the  same  time  (1901)  has 
paid  interest  of  $27,247,  the  excess  of  the 
life  insurance  company's  payments  being 
$8,750.05.  To-day  the  stock  is  paying  no 
dividends  and,  if  sold,  would  be  worth 
only  $2,250,  a  loss  of  93  per  cent  of  the 
capital  originally  invested.  On  the  other 
hand,  the  life  insurance  funds  are  still 
worth  $31,500  in  cash  and  are  earning 
over  4^  per  cent  interest. 

The  stocks  discussed  above  may  even- 
tually recover  and  again  pay  satisfactory 
dividends,  as  the  properties  of  both  com- 
panies are  excellent.  But  this  possibility 
offers  little  consolation  to  women  and 
children  whose  incomes  have  been  seri- 
ously affected  by  the  loss  of  dividends. 

Many  apparently  good  investments  have 


30        THE  HOUSE  OF  PROTECTION 

turned  out  even  worse.  Says  a  financial 
writer:  "I  do  not  know  of  a  single  security 
listed  on  the  stock  exchange  and  dealt  in 
largely  in  an  open  market  which  yields  as 
much  as  6  per  cent  and  which  at  the  same 
time  can  be  called  absolutely  safe." 

Ida  M.  Tarbell  quotes  the  late  Standard 
Oil  official,  Henry  H.  Rogers,  as  saying: 
"I  had  $1,000  sent  me  to-day  from  a 
woman  who  wants  20  per  cent.  /  cannot 
place  it  so  that  I  can  be  sure  she  will  have 
even  6  per  cent  permanently." 

Isn't  it  clear  that  even  the  widow  who 
is  wise  and  seeks  and  gets  good  advice 
and  buys  sound  real  estate  or  stocks,  or 
even  bonds,  may  through  changed  condi- 
tions find  her  income  reduced  and  her 
principal  impaired?  Such  a  result  is  not 
inevitable.  But  it  is  possible;  indeed, 
it  happens  in  thousands  and  thousands 
of  cases. 


Reduction  of  Dividends  a  Calamity  for  the 
Widow 

Have   you   ever   read   market   reports 
with  a  life-insurance  eye?     Here  are  a 


THE  HOUSE  OF  PROTECTION        31 

few  quotations  from  brokers'  letters  which 
the  author  has  recently  received: 

"At  the  directors'  meeting  held  April 
6, 1921,  the  directors  of  the  -  -  Company 
voted  to  pass  the  quarterly  dividend  of 
fifty  cents  a  share  due  on  the  2,000,000 
shares  of  capital  stock  of  $50  par  value, 
at  this  time." 

"Dividends  Reduced  by Motor  Com- 
pany. The  directors  of  the Motor 

company  at  a  meeting  held  on  February 
4th  reduced  the  dividend  of  seventy-five 
cents  to  fifty  cents  a  share.  .  .  .  The 
reduction  was  voted  in  view  of  the  present 
unsettled  conditions  and  in  no  way  reflects 
on  the  financial  condition  of  the  company." 

— "Co.  in  Good  Financial  Condition. 

.  .  .  The  action  of  the  directorate 

in  omitting  its  dividend  in  1919  was  evi- 
dently a  far-sighted  movement  and  one 
that  will  eventually  be  to  the  advantage 
of  stockholders." 

" Copper.  .  .  .  The  reason  given 

for  reduction  in  the  dividend  is  a  logical 


one." 


All  the  companies  mentioned  above  are 
well  known.    Except  for  lack  of  space  we 


32        THE  HOUSE  OF  PROTECTION 

could  add  many  similar  quotations  noted 
within  a  few  days. 

A  man  leaves  his  family  an  estate  com- 
posed often  of  these  same  stocks  and 
others  of  like  kind,  or  he  leaves  substan- 
tial insurance  which  his  beneficiaries  invest 
in  such  companies  (good  concerns,  offer- 
ing satisfactory  investments  for  certain 
business  men);  you  can  easily  imagine 
the  effect  of  such  announcement  on  the 
widow  and  children.  " Logical  reasons" 
do  not  satisfy  when  their  income  is  cut. 
The  fact  that  the  reduction  in  dividends 
is  a  " far-sighted  movement"  on  the  part 
of  the  board  of  directors,  or  that  the 
"  reduction  in  no  way  reflects  on  the 
financial  condition  of  the  company,"  does 
not  comfort  the  widow  who  was  counting 
on  these  dividends  to  pay  her  last  month's 
biUs. 

The  financial  columns  of  the  news- 
papers have  just  announced  a  33^-per- 
cent  cut  in  the  dividends  of  one  of  the 
greatest  and  most  substantial  corporations 
in  the  United  States.  It  is  considered  a 
model  of  its  kind.  Of  a  total  of  about 
130,000  stockholders,  a  New  York  news- 


THE  HOUSE  OF  PROTECTION  33 

paper  correspondent  states  that  over  60,- 
000  are  women.  This  reduction  must 
cause  thousands  of  these  women  much 
anxiety  or  even  actual  discomfort  or  dis- 
tress. The  conditions  causing  a  reduction 
in  the  dividend  are  beyond  the  control  of 
the  very  able  management  of  the  corpora- 
tion; the  general  economic  situation  of 
the  country  is  at  fault. 

Standard  stocks,  in  which  life-insurance 
proceeds  are  invested,  may  reduce  or  suspend 
dividend  payments.  Even  the  temporary 
loss  of  income  is  a  calamity  to  which  the 
widow  and  children  should  not  be  subjected, 
if  there  is  a  possible  way  of  avoiding  it. 

Trying  to  Win  Big  Profits 

And  there  are  many  women  who  take 
long  chances  with  their  money,  hoping 
to  make  the  small  insurance  fund  yield 
large  profits.  They  find  it  hard  to  make 
ends  meet.  They  have  heard  of  people 
who  have  made  fortunes  by  risking  a  small 
capital.  They  think,  unless  one  has  the 
courage  to  take  a  chance,  one  can't  expect 
ever  to  be  rich.  Even  Ponzi  made  money 


34        THE  HOUSE  OF  PROTECTION 

for  some  people.  Gas  and  oil,  copper 
mines,  and  land  speculation  seem  legiti- 
mate, and  newspapers  in  their  home 
towns  are  advertising  these  opportunities. 
Surely  such  advertisements  would  not 
be  printed  if  there  were  any  great  risk 
involved.  And  so  they  take  a  chance, 
with  the  usual  result. 


Speculative  Investments 

About  two  years  ago  the  newspapers  of 
western  Pennsylvania  were  full  of  adver- 
tisements of  the  fortunes  that  were  being 
made  in  the  new  gas  and  oil  field  at 
McKeesport,  Pennsylvania.  To-day  little 
is  heard  of  the  results,  although,  according 
to  an  estimate  made  by  Mr.  J.  French 
Robinson,  a  geologist  who  has  specialized 
in  petroleum  and  natural  gas,  approxi- 
mately $30,000,000  was  invested  in  the 
organization  of  companies  in  that  field 
within  a  year.  Mr.  Robinson  told  the 
author  that  he  believed  the  total  value 
of  the  products  of  the  McKeesport  gas 
field,  past  and  future,  would  not  greatly 
exceed  $3,000,000.  Think  of  it!  Twenty- 


THE  HOUSE  OF  PROTECTION        35 

seven  out  of  thirty  million  dollars  wasted! 
In  many  instances  wells  were  never  com- 
pleted. Some  companies  were  promoted 
which  did  no  drilling,  the  proceeds  of 
their  stock  sales  being  absorbed  in  "  organ- 
ization" expenses.  And  the  worst  of  it 
is  that  in  such  speculations  the  majority 
orthe  speculators  are  persons  who  cannot 
afford  to  lose  any  part  of  their  capital. 

In  oil,  mining,  and  real-estate  promo- 
tions, and  others  of  a  similar  type,  much 
misleading  advertising  material  is  often 
circulated.  Certain  publishers  are  as 
much  to  blame  for  many  of  these  losses 
as  are  the  promoters  who  furnish  the 
advertising  copy.  It  is  almost  incon- 
ceivable that  we  should  allow  such  adver- 
tising as  so  frequently  appears,  especially 
in  daily  newspapers. 

One  of  the  commonest  forms  of  arousing 
interest  in  oil,  mining,  and  real -estate 
booms  is  to  cite  a  case,  or  a  few  cases,  of 
persons  who  have  made  an  amazingly 
large  profit  from  an  insignificant  sum  of 
money.  Even  if  the  truth  is  always  told 
as  to  an  individual  case,  the  advertise- 


36        THE  HOUSE  OF  PROTECTION 

ment  is  misleading;  for  the  suggestion 
conveyed  to  the  reader  is  that  he,  too, 
may  make  a  fortune  from  a  very  small 
investment.  The  enormous  amount  of 
persistent  advertising  of  this  sort  is  in 
itself  ample  proof  that  the  public  buys 
the  stocks  that  are  offered. 

Glowing  accounts  are  given  of  the  pros- 
pects of  the  new  companies,  and  every 
device  is  used  to  nerve  the  reader  up  to 
the  point  of  making  the  plunge.  One  of 
the  well-known  tricks  is  to  state  that 
stock  is  now  selling  for,  say,  $1  a  share, 
but  that  the  price  will  advance  to  $2  the 
first  day  of  next  month.  To  use  a  slang 
expression,  this  kind  of  advertising  "gets 
them  coming  and  going."  They  will  lose 
if  they  don't  buy  and  double  their  money 
if  they  do.  What  chance  has  the  unskilled 
investor,  who  is  daily  wondering  if  there 
isn't  some  quick  way  to  get  something 
big  for  only  a  little,  against  the  strong 
appeal  of  such  advertising? 

Following  are  extracts  from  two  typical 
oil-promotion  advertisements  actually  pub- 
lished in  newspapers: 


THE  HOUSE  OF  PROTECTION        37 


GOING  FAST! 

The  phenomenal  success  of 

Gas  Company  and  the  tremen- 
dous profits  made  by  investors, 
ranging  from  several  hundred  per 
cent  to  a  MONTHLY  INCOME  of 
$3,195  on  an  original  invest- 
ment of  $150,  have  created  world- 
wide interest  in gas  stocks. 


IS  YOUR  INCOME  $12,000  A 
MONTH? 

Gas  and  Oil  will  advance. 

The  man  who  is  to-day  getting 
$12,000  a  month  out  of  his  $600 

investment  in Gas  stocks  is 

the  man  who  had  the  COURAGE 
and  the  NERVE  to  invest  $600. 


The  author  has  just  received  a  circular 
advertising  an  oil  company  and  citing  the 
following  instances  of  individual  profits: 
(1)  A  St.  Louis  woman  who  invested  $200 


38        THE  HOUSE  OF  PROTECTION 

and  made  $75,000;  (2)  a  Mr.  B.  who 
invested  $75  in  two  pieces  of  oil  land  for 
which  he  had  been  offered  $50,000;  (3) 
a  man  who  bought  a  lot  for  $100  on  which 
he  sold  a  lease  for  $20,000;  (4)  a  Mr. 
C.  who  " cleaned  up"  $106,230.85  on  an 
investment  of  only  $3,000. 

"She  Now  Paints  China  a  Little" 

A  trust  company  of  New  York  City,  in 
one  of  its  advertisements,  tells  the  story 
of  a  woman  who  had  inherited  a  large 
estate  which  she  managed  herself: 

The  elderly  lady  who  opened 
her  old  tin  box  of  securities  is 
quite  willing  that  we  give  the  fol- 
lowing facts: 

She  is  a  gentlewoman  over  sixty 
years  of  age.  She  has  never 
shown  money  sense.  Fifteen 
years  ago  she  inherited  the  family 
estate  of  close  to  a  hundred  thou- 
sand dollars. 

Financially,  at  that  time,  her 
future  looked  rosy. 


THE  HOUSE  OF  PROTECTION        39 

On  the  advice  of  a  friend  of  the 
family  she  at  once  invested  every- 
thing as  follows : 

Oil  stocks  (two  companies)  .     .  $27,000 
Mining  stocks  (four  companies) .     32,000 
A  city  home  paid  for  outright  .     17,500 
Deposited    in    several    savings 
banks 18,000 

$94,500 

She  was  led  to  believe  her  in- 
come would  amount  to  $5,500  a 
year. 

The  mining  stocks  yielded 
handsome  dividends  for  a  few 
years,  then  dwindled,  then 
stopped.  From  the  oil  stocks 
she  fai;ed  worse.  Journeys  to  the 
savings  banks  became  more  fre- 
quent. Later  she  rented  her 
home — finally  mortgaged  it. 

To-day  the  net  income  from 
the  estate  is  a  bare  $600.  The 
gentlewoman,  as  we  said,  is  past 
sixty.  We  understand  she  now 
paints  china  a  little  and  sells 
what  she  can. 


40        THE  HOUSE  OF  PROTECTION 

One  day  she  opened  an  old  tin 
box  and  in  an  embarrassed  way 
exhibited  the  bundle  of  worthless 
stock  certificates.  That  is  how 
we  learned  the  story. 

As  business  men  perhaps  it  is 
not  our  place  to  moralize.  But 
we  do  know  that  such  money  waste 
is  morally  wrong  and  should  be  and 
can  be  made  impossible  by  definite 
safety  measures. 

Trading  in  Margins 

The  most  insidious  methods  are  used  by 
some  stock  brokers  in  an  endeavor  to 
secure  the  business  of  new  customers, 
including  women.  For  example,  the 
author  has  received  printed  matter  in 
which  trading  in  margins  is  explained  for 
the  benefit  of  the  uninitiated  by  a  care- 
fully drawn  analogy  to  buying  a  house 
with  a  small  initial  payment  and  a  mort- 
gage for  the  balance.  It  is  usually  stated 
that  the  stock  margin  differs  from  the 
mortgage  on  real  estate  only  in  that  the 
margin  is,  as  it  were,  a  mortgage  which 
has  to  be  renewed  from  day  to  day. 


THE  HOUSE  OF  PROTECTION        41 

Nothing  is  said,  of  course,  about  the 
dangers  of  the  widely  fluctuating  prices 
of  stocks  and  of  the  inability  of  the  aver- 
age stock  trader  to  put  up  the  money 
necessary  to  protect  himself  in  case  of  a 
bad  break  in  the  market;  nor  is  he,  as 
a  rule,  warned  not  to  trade  in  highly 
speculative  stocks.  The  chief  emphasis 
is  on  the  opportunity  for  trading  in  a 
much  larger  amount  of  stocks  than  the 
purchasers  could  possibly  buy  to  hold, 
with  the  chance  of  making  large  profits 
out  of  an  advance  in  the  market  with 
only  a  comparatively  small  amount  of 
capital  invested. 

"  Women  are  prone  to  speculate,"  says 
a  financial  journalist.  In  the  list  of  cus- 
tomers of  a  notorious  bucket  shop  that 
came  to  grief  not  very  long  ago,  50  per 
cent  were  women  who  did  business  by 
mail  entirely.  An  officer  said,  "We  have 
found  them  excellent  customers.  Most 
of  them  deal  in  very  small  lots.  When 
they  lose  they  pay  up.  Many  of  them 
are  speculating  without  the  knowledge 
of  their  husbands  and  are  afraid  to  raise 
a  row;  others  are  restrained  by  the  desire 


42        THE  HOUSE  OF  PROTECTION 

to  avoid  publicity  of  an  unpleasant  sort. 
On  the  whole  we  find  them  satisfactory." 


Leading  Citizen  a  Crooked  Tipster 

Recently  a  salesman  of  promotion  stocks 
told  the  author  of  one  of  his  experiences 
that  is  significant.  He  arrived  in  a  village 
in  the  West  and  called  on  the  local  banker, 
whom  he  asked  for  the  names  of  persons 
who  might  be  in  a  position  to  buy  stock. 
The  banker  suggested  the  name  of  a 
widow,  who,  he  said,  had  a  "  little  money," 
and  the  salesman  went  to  call  on  her.  He 
found  out  that  all  she  had  was  about  $300. 
Fortunately  for  her,  he  was  honest,  and 
told  her  that  the  stock  he  was  selling  was 
speculative  and  was  not  the  sort  of  thing 
in  which  she  should  invest  her  money. 

The  banker  must  have  known  the 
widow's  situation,  for  they  lived  in  a  small 
town  and  he  was  so  well  acquainted  with 
her  that  he  knew  of  her  small  savings. 
It  seems  almost  unbelievable  that  a  man 
of  his  position  should  have  done  what 
he  did.  Yet  the  fact  remains.  If  he 
made  the  same  suggestion  to  other  stock 


THE  HOUSE  OF  PROTECTION        43 

salesmen,  it  is  quite  probaole  that  sooner 
or  later  she  put  her  money  into  some 
speculative  stock. 

The  widow  is  not  even  sure  of  help  from 
those  whose  position  in  the  community  would 
seem  to  give  her  the  right  to  expect  from  them 
the  utmost  protection  within  their  power. 

"Birds  of  Prey"  —Lord  Bacon 

But  there  are  still  worse  things  than 
speculations  in  gas,  oil,  copper,  and  gold. 
There  are  schemes  by  which  people  are 
intentionally  defrauded  of  their  money 
for  which  no  adequate  return  is  even 
possible.  Swamp  lands  have  been  adver- 
tised as  perfect  soil  for  plantations  or 
orange  groves.  Salt  marshes  have  been  ex- 
ploited as  seaside  resorts.  Orchards  have 
been  offered  and  sold  on  land  that  wouldn't 
yield  any  better  crop  than  stones  and 
thistles.  Fake  oil  and  mining  companies 
are  promoted.  These  schemes  are  often 
operated  through  the  mails,  and  every 
year  the  United  States  postal  authorities 
run  some  of  them  to  earth.  Half  a  billion 
dollars  a  year  is  the  figure  compiled  by  the 


44        THE  HOUSE  OF  PROTECTION 

Federal  Trade  Commission  in  1921  as  the 
amount  invested  by  the  people  of  this  coun- 
try in  worthless  stocks  and  other  fraudulent 
investments.  This  startling  figure  was  pre- 
sented before  the  Judiciary  Committee  by 
the  Federal  Trade  Commission  in  the  hope 
of  obtaining  government  protection  for 
credulous  investors.  It  is  estimated  that 
of  the  half  billion  lost  in  this  way  in  1920, 
$350,000,000  came  out  of  savings  accounts, 
while  $150,000,000  was  wasted  through  the 
exchange  of  Liberty  Bonds. 

In  1920  a  New  York  newspaper  pub- 
lished the  following: 

"A  procession  of  heavily  veiled  widows 
and  many  other  kinds  of  persons  filed 
into  the  Federal  Building  all  day  yester- 
day, begging  the  post-office  inspectors 
to  get  back  the  money  they  had  sent  to 
the  Burr  Brothers,  lately  of  the  Flatiron 
Building,  but  now  of  the  Tombs,  for 
investment  in  the  wildcat  oil  and  mining 
companies  they  pretended  to  promote. 

"  Inspector  Kincaid  said  many  of  the 
women  lost  all  they  had  in  the  world. 
Some  of  the  women,  in  fresh  mourning, 
related  that  they  had  invested  with  Burr 


THE  HOUSE  OF  PEOTECTION        45 

Brothers  the  proceeds  of  their  husbands' 
life  insurance  on  the  promise  of  having 
their  little  fortunes  doubled  and  tripled, 
with  handsome  dividends,  besides,  and 
they  had  lost  all.  These  tales  they  told 
with  tears  and  sobs. 

"Mrs.  L-  -  of  Philadelphia  told  the 
inspectors  that  her  husband  had  died  only 
a  few  weeks  ago.  His  life  insurance 
amounted  to  $4,000,  and  this  was  all  she 
had  for  her  support.  She  had  seen  the 
advertisement  of  Burr  Brothers  telling 
how  a  small  investment  would  soon  grow 
to  an  enormous  sum,  and  had  sent  them 
her  money.7' 

There  is  a  well-organized  practice  of 
circularizing  what  crooked  promoters  call 
"sucker  lists" —lists  of  people  who,  it  is 
thought,  will  "bite"  easily.  The  names 
of  widows  who  have  received  insurance 
money  are  eagerly  sought  for  such  lists. 
An  officer  of  a  trust  company  told  the 
author  that  the  heirs  of  estates,  large  and 
small,  are  listed,  circularized,  and  solicited 
by  fraudulent  operators.  A  writer  on 
the  subject  says  that  "it  is  no  exaggera- 
tion to  say  that  more  than  one  half  of  the 


46        THE  HOUSE  OF  PROTECTION 

small  legacies  given  to  unprotected  women 
in  this  country  go  wrong." 

Preparing  " sucker  lists"  is  a  specialized 
business  carried  on  by  certain  "name 
brokers/'  of  whom  a  magazine  writer  says: 
"Perhaps  the  highest  priced  ' quick'  list 
consists  of  the  names  of  people  of  small 
means  who  have  lately  inherited  money. 
A  company  which  retails  a  list  of  this  sort 
to  five  promoters  adds  to  it  week  by  week 
and  gets  a  very  high  price.  The  names 
are  obtained  through  a  clipping  agency, 
which  may  (or  may  not)  be  an  innocent 
partner  in  the  crime.  The  agency  is 
under  contract  to  furnish  to  the  'name 
broker'  all  printed  details  of  the  settle- 
ment of  small  country  estates.  Again, 
legal  notices  very  often  contain  valuable 
names.  The  house  organs  published  by 
some  life-insurance  companies  have  long 
lists  of  recent  beneficiaries.  These  names 
are  the  finest  possible  grist  for  the  mills." 

Liberty  Bonds  for  Worthless  Stocks 

An  investigation  made  by  the  United 
States  Treasury  Department  revealed  the 


THE  HOUSE  OF  PROTECTION        47 

fact,  according  to  Louis  Guenther,  in  an 
extraordinary  story,  in  The  World's  Work, 
that  $400,000,000  worth  of  Liberty  Bonds 
were  taken  from  people  living  in  the  Middle 
West  in  exchange  for  promotion  stocks 
and  insecure  investments.  Mr.  Guenther 
also  gives  a  list  of  oil,  mining,  industrial, 
and  miscellaneous  stocks  of  questionable 
character  in  which  about  three  billion  dol- 
lars has  been  wasted.  He  quotes  an  Okla- 
homa newspaper  in  stating  that  for  every 
$555  of  capitalization,  oil-promotion  com- 
panies operating  in  Oklahoma  produced 
only  one  dollar's  worth  of  oil. 

Is  it  surprising  that  women  take  chances 
with  their  money?  Their  husbands  did 
the  same  thing.  No  doubt  most  of  the 
three  billions  referred  to  above  was  risked 
by  men. 

The  get-rich-quick  promoter  is  more 
than  a  character  in  fiction;  he  is  a  very 
real  and  dangerous  person,  perennial, 
ubiquitous,  clever,  persevering,  and  thor- 
ough— a  human  hawk,  alert  to  prey  upon 
the  weak  and  defenseless. 

What  an  apt  phrase  that  of  Elbert 
Hubbard's,  that  the  woman  inexperienced 


48        THE  HOUSE  OF  PROTECTION 

in  investments  is  a  "shining  mark  for  the 
mining  shark." 


Fraudulent  Real  Estate  Sales  and  Mortgages 

The  following  newspaper  dispatch  is  a 
good  example  of  the  astonishing  simplicity 
of  some  of  the  frauds  that  are  successfully 
practiced  on  persons  who  have  money 
to  invest : 

"With  more  than  a  score  of  lawyers 
trying  to  unravel  the  tangled  affairs  of 

Harry so  as  to  learn  if  the  mortgages 

and  deeds  to  homes  held  by  their  clients 
are  worth  more  than  the  paper  they  are 
written  on,  the  accused  real-estate  operator 
refused  to-day  to  make  any  statement. 
He  is  in  the  county  jail,  on  charges  of 
forgery  and  embezzlement.  It  is  alleged 

by  former  Congressman  that  his 

defalcations  will  total  more  than  half  a 
million  dollars. 

UA  number  of  clergymen  are  among 
those  who  hold  mortgages  declared  by 

the  police  to  be  worthless.  The  Rev. 

of has  a  $2,000  mortgage  on  property 

valued  at  $5,500,  on  which is  alleged 


THE  HOUSE  OF  PROTECTION        49 

to  have  sold  mortgages  totaling  $12,000. 

Director  of  Public  Safety  invested 

$24,000  for  relatives  in property  and 

mortgages. 

"A  lawyer  declared  that  a  deed  was 

given  his  client  by to  the  fifth  house 

in  a  four-house  row,  while  another  found 
that  his  client's  deed  was  for  an  under- 
ground alley  instead  of  the  house  thought 
to  have  been  purchased.  In  the  Record- 
er's office  it  has  been  discovered  that 

has  issued  six  mortgages  on  one  property.7' 

Cleveland  Bank's  Experiment — The  Cat  and 
Rat  Ranch 

An  article  published  last  year  in  the 
American  Magazine  tells  how  a  Cleveland 
banker  demonstrated  that  many  men  will 
be  deceived  by  any  kind  of  an  investment 
"fake,"  even  when  the  scheme  advertised 
is  clearly  a  fraud  and  when,  in  addition, 
the  public  is  warned  against  it.  He 
posted  in  his  bank  window  a  large  pla- 
card, telling  the  old  ridiculous  story  of 
the  California  Cat  and  Rat  Ranch,  as 
follows: 


50        THE  HOUSE  OF  PROTECTION 

GLORIOUS  OPPORTUNITY  TO  GET 
RICH  QUICK 

INVEST  IN 
THE  CALIFORNIA  RANCHING  COMPANY 

Now  being  organized  to  start  a  cat  ranch 
in  California 

We  are  starting  a  cat  ranch  in  Cali- 
fornia with  100,000  cats.  Each  cat  will 
average  twelve  kittens  a  year.  The  cat 
skins  will  sell  for  thirty  cents  each.  One 
hundred  men  can  skin  5,000  cats  a  day. 
We  figure  a  daily  net  profit  of  over  $10,000. 

Now  WHAT  SHALL  WE  FEED  THE  CATS? 

We  will  start  a  rat  ranch  next  door 
with  1,000,000  rats.  The  rats  will  breed 
twelve  times  faster  than  the  cats.  So 
we'll  have  four  rats  to  feed  each  day  to 
each  cat.  Now  what  shall  we  feed  the 
rats?  We  will  feed  the  rats  the  carcasses 
of  the  cats  after  they  have  been  skinned. 

Now  GET  THIS 

We  feed  the  rats  to  the  cats  and  the 
cats  to  the  rats,  and  get  the  cat  skins  for 


THE  HOUSE  OF  PROTECTION        51 

nothing.     Shares  are  selling  at  five  cents 
each,  but  the  price  will  go  up  soon. 

INVEST    WHILE    OPPORTUNITY 
KNOCKS  AT  YOUR  DOOR. 

Incredible  as  it  may  seem,  the  bank  was 
besieged  by  persons  inquiring  for  further 
particulars  and  by  many  who  wanted  to  buy 
stock.  Some  were  insistent  when  the  bank 
explained  that  the  scheme  was  preposter- 
ous, thinking  they  were  being  denied  the 
privilege  of  " getting  in  on  a  good  thing." 

If  men  of  some  business  experience  are 
so  easily  tricked  by  a  blatant  hoax,  how 
can  we  expect  that  a  widow  of  no  business 
experience,  whose  husband  has  left  her 
all  too  little  with  which  to  eke  out  a  diffi- 
cult existence,  should  not  be  persuaded 
to  take  a  chance  in  oil  or  gas  or  mines  or 
something  else,  in  the  hope  of  securing  a 
big  return.  Indeed,  are  the  women  really 
the  ones  to  blame? 

The  "Widow's"  Advertisement 

With  a  view  to  seeing  what  sort  of  pro- 
posals might  be  made  to  a  woman  who 


52        THE  HOUSE  OF  PROTECTION 

I 

has  money  to  invest,  the  author  ran  the 
following  advertisement  in  a  newspaper 
several  months  ago: 

Has  anyone  an  investment  or  business  interest, 
earning  a  fair  profit  and  absolutely  safe,  to  offer  a 
widow  with  $12,000  to  invest?  Give  details. 
Write  S  150. 

Here  are  some  of  the  proposals  received 
purporting  to  comply  with  the  require- 
ment of  the  advertisement,  that  the  invest- 
ment be  absolutely  safe  and  yield  a  fair 
profit  (note  the  number  of  new  enter- 
prises) : 

1.  An  interest  in  a  retail  coal  business 
in  Ohio,  guaranteeing  10  per  cent  at  the 
beginning  and  25  per  cent  later. 

2.  An  interest  in  a  new  factory  making 
sanitary  sugar  bowls. 

3.  A  half  interest  in  an  established  busi- 
ness that  "will  surpass  as  an  investment 
any  business  proposition  in  the  city." 

4.  An  interest  in  a  chain  of  stores. 

5.  Preferred  stock  in  a  manufacturing 
company  at  $120  a  share  and  a  share  of 
common  stock  with  each  share  of  pre- 
ferred. 


THE  HOUSE  OF  PROTECTION        53 

6.  An  interest  in  a  new  stove  manu- 
factory. 

7.  Stock  in  a  coal  mine  just  being  organ- 
ized, with  a  view  to  making  huge  profits 
out    of    foreign    shipments.     The    writer 
says,  "  Safety  is  the  keynote  of  this  propo- 
sition and  the  profits  are  large  enough  to 
satisfy  the  most  exacting." 

8.  Another  does  not  name  the  business, 
but  it  is  a  proposition  that  "  makes  the 
money  secure  and  assures  big  profits." 

9.  A    realty    company    which    is   just 
organizing. 

10.  A  postal  card  read  as  follows:    "If 
a  salary  of  $50  a  week  and  15  per  cent  on 
your  money  will  satisfy  you,  call  at  our 
office.    We   want   a   lady   to   manage   a 
branch  store." 

11.  The  gem  of  the  lot  is  from  a  man 
who   claims   to   have   perfected   some  of 
the  most  useful  of  all  inventions,  which 
he    specifies — inventions    well    known    to 
everyone.     He  wants  the  widow  to  put  up 
her  $12,000  and  be  an  equal  partner  in 
the  promotion  of  a  number  of  his  new 
inventions,  such  as  a  geographical  card 
game,  a  press  feeder's  delivery  thimble, 


54        THE  HOUSE  OP  PROTECTION 

an  aeroplane  stabilizer,  a  collapsible  rim 
for  automobiles.  He  tells  the  widow  that 
he  believes  he  can  convince  her  that  the 
proposition  "is  bound  to  yield  not  hun- 
dreds or  thousands  of  dollars,  but  millions, 
in  a  comparatively  short  time." 

Most  of  these  proposals  represent  com- 
mon, sound  types  of  business — a  retail 
coal  firm,  a  manufactory  of  sugar  bowls, 
a  chain  of  stores,  a  stove  factory,  a  realty 
company.  One  who  was  afraid  of  oil 
wells  and  gold  mines  might  have  consid- 
erable confidence  in  these  proposals  for 
substantial  types  of  business,  such  as  we 
see  about  us  in  every  community.  But 
the  widow's  funds  have  no  place  in  such 
enterprises. 

After  carefully  reading  these  letters 
several  times,  the  author  is  convinced 
that  most  of  them  are  written  by  men 
who  have  no  dishonest  intentions.  No 
doubt  they  fully  believe  they  can  succeed 
if  they  only  can  get  capital.  They  prob- 
ably bear  good  reputations.  This  makes 
their  bids  for  capital  all  the  more  seduc- 
tive, and  all  the  more  dangerous  to  the 


THE  HOUSE  OF  PROTECTION        53 

widow  who  can  afford  to  take  no  chances 
with  her  limited  funds. 


Beneficiaries  Try  to  Destroy  Safeguards 

One  of  the  most  convincing  proofs  of 
the  danger  of  leaving  insurance  money 
in  a  lump  sum  is  the  attempt  made  by 
many  beneficiaries  to  have  life-insurance 
companies  pay  them  the  cash  equivalent, 
or  commuted  value,  of  the  payments 
guaranteed  under  income  settlements. 

The  author  has  recently  asked  the  legal 
representatives  of  two  large  life  insurance 
companies  if  they  were  often  requested 
to  commute  income  settlements — that  is, 
to  pay  the  cash  equivalent  of  future 
income  payments.  Both  of  them  replied 
that  a  great  many  widows  even  go  so  far 
as  to  employ  lawyers  to  try  to  force  the 
company  to  pay  the  principal  sum  in- 
stead of  the  income.  No  doubt  other 
life  insurance  companies  have  the  same 
experience. 

Of  course,  the  companies  refuse  to  pay  the 
principal  in  every  case  in  which  the  policy 
contract  or  the  insurers  application  withheld 


56        THE  HOUSE  OF  PROTECTION 

the  right  of  commutation.  Frequently  the 
company's  officers  follow  up  such  cases 
and  learn  that  the  beneficiary  has  lost 
what  money  she  had,  aside  from  her 
insurance  income,  in  some  speculative 
venture. 

A  life  underwriter  told  the  author 
about  a  woman  entitled  to  a  limited  in- 
stallment income  of  about  $1,000  a  year 
for  five  years,  who  requested  commutation 
of  her  income,  saying  frankly  that  she 
wanted  the  money  to  invest  in  oil  stocks. 
She  was  refused,  and  then  employed  a 
lawyer,  who  failed,  of  course,  to  get  the 
money  for  her.  Shortly  afterward  an 
income  payment  of  about  $1,000  was 
made  to  her,  which  she  promptly  put  into 
oil  stocks.  Before  the  second  payment 
came  due  the  oil  company  had  used  up 
its  funds  drilling  a  couple  of  dry  wells  and 
was  out  of  business.  The  widow  was 
then  very  grateful  to  her  husband  and  to 
the  company  for  protecting  her.  She 
said  that  if  she  had  received  the  $4,000 
(approximately)  which  was  still  in  the 
company's  hands  she  would  have  put  the 
whole  amount  into  the  oil  company. 


THE  HOUSE  OF  PROTECTION        57 

Usually  it  is  the  beneficiaries  of  small 
policies  who  seek  to  have  the  insured' s 
purpose  thwarted.  The  smaller  one's 
estate,  the  stronger  becomes  the  tempta- 
tion to  risk  one's  money  in  the  hope  of 
winning  a  large  profit.  The  man  or 
woman  who  has  an  adequate  income  from 
conservative  investments  is  content,  or 
can  easily  be  convinced  that  it  is  unwise 
to  take  any  chances.  But  persons  who 
have  little  often  feel  that  they  ought  to 
make  an  effort  to  increase  their  estates 
rapidly.  They  quote  the  old  adage, 
" Nothing  ventured,  nothing  gained"  as  a 
text  from  which  to  justify  the  risks  they 
propose  taking. 

Yet  it  is  the  small  estate  which  should 
be  guarded  most  carefully.  If  a  widow 
has  $100,000,  she  can  lose  $20,000  and 
still  have  enough  to  live  on.  But  the 
woman  whose  income  depends  on,  say, 
$5,000,  can't  afford  to  lose  a  dollar.  The 
man  who  is  able  to  leave  only  a  small 
estate  should  be  at  least  as  careful  as  the 
millionaire  in  surrounding  his  estate  with 
every  safeguard.  However,  as  a  matter 
of  fact,  rich  men  usually  exercise  greater 


58        THE  HOUSE  OF  PROTECTION 

caution  in  these  matters  than  do  men  of 
small  means. 


Misplaced   Confidence — Dishonest   Friends 
and  Relatives 

One  of  the  saddest  of  the  many  unfor- 
tunate experiences  that  can  come  to  a 
widow  with  money  to  invest  is  a  loss 
through  the  dishonesty  of  a  friend  or 
relative.  A  lady  living  in  the  East  lost 
her  husband  in  the  summer  of  1900.  He 
left  enough  life  insurance  to  educate  the 
two  children  and  to  furnish  his  widow 
with  a  fair  income  at  a  reasonable  rate  of 
interest.  In  1910  an  old  friend  of  the 
family  visited  them  in  their  home.  In 
the  old  familiar  way  all  sorts  of  family 
affairs  were  discussed,  for  they  knew  he 
was  interested  in  whatever  was  of  impor- 
tance to  them.  The  widow  told  her 
friend  that  she  was  obliged  to  reinvest 
$5,000  which  she  had  just  received  in 
payment  of  a  mortgage,  and  asked  his 
advice.  He  mentioned  several  invest- 
ments and,  finally,  had  an  inspiration. 
He  just  remembered  that  he  must  soon 


THE  HOUSE  OF  PROTECTION        59 

borrow  a  few  thousand  dollars  to  carry 
on  some  development  work  in  a  large 
orchard  he  had  bought  in  the  West.  It 
was  a  splendid  property  and  he  expected 
it  would  soon  begin  to  yield  him  a  large 
profit.  If  she  wanted  him  to  take  her 
money  he  would  pay  her  the  same  rate  of 
interest  he  would  be  obliged  to  pay  in  the 
West — rather  a  high  rate.  She  was 
pleased,  the  money  was  loaned,  and  a 
note  given. 

A  year  passed  and  the  first  interest 
payment  was  due;  but  no  word  came 
from  the  West.  Finally,  a  letter  was 
written;  but  there  was  no  answer  to  this 
nor  to  a  second  letter;  and  in  due  time 
both  were  returned  from  the  Dead  Letter 
Office.  A  letter  to  a  brother  of  the  bor- 
rower brought  the  shocking  information 
that  his  brother  had  not  been  heard  from 
in  more  than  a  year  and  had  never  owned 
an  orchard  property.  The  widow  has 
never  received  any  part  of  her  $5,000. 

The  author  knew  a  banker,  a  highly 
respected  and  greatly  admired  young  man, 
who  managed  the  estate  of  two  sisters 
very  satisfactorily  for  several  years.  Later 


60        THE  HOUSE  OF  PROTECTION 

he  became  interested  in  a  business  which 
was  so  successful  that  he  gave  up  his  bank 
position  in  order  to  devote  all  his  time  to 
it.  But  there  soon  seemed  to  be  trouble 
with  the  income  on  the  trust  estate. 
Investigation  showed  that  he  had  embez- 
zled a  large  part  of  the  funds  for  use  in 
his  business,  with  the  result  that  he  is 
now  serving  in  the  penitentiary  and  the 
sisters  are  in  reduced  circumstances. 

The  author  knows  of  two  sisters — 
elderly  maiden  ladies — whose  father,  a 
successful  merchant,  left  to  them  and  a 
brother  a  large  estate.  It  was  natural 
that  they  should  look  to  their  brother, 
who  had  made  a  marked  success  in  busi- 
ness, for  guidance  in  the  investing  of  their 
money.  Finally,  they  turned  over  all 
their  property  to  him  to  manage,  giving 
him  a  free  hand  to  sell  any  of  it,  in  order 
to  make  more  advantageous  investments 
if  he  saw  fit  to  do  so.  For  several  years 
they  received  regularly  an  income  which 
represented  a  satisfactory  return  on  their 
capital.  Eventually  he  notified  them  that 
some  of  their  investments  were  tempo- 


THE  HOUSE  OF  PROTECTION        61 

rarily  suspending  dividends,  but  that  he 
was  in  a  position  to  make  the  losses  good, 
which  he  apparently  did. 

Imagine  how  terribly  they  were  shocked 
when  one  day  they  received  a  telegram 
announcing  the  death  of  their  brother  by 
suicide.  For  several  years  he  had  specu- 
lated with  their  money  as  well  as  his  own, 
finally  losing  everything.  Rather  than 
face  the  censure  of  his  sisters  and,  perhaps, 
punishment,  he  had  taken  his  life.  Fortu- 
nately the  sisters  were  well  educated  and 
had  influential  friends;  and,  although  they 
were  over  fifty  years  of  age,  they  were  able 
to  secure  agreeable  and  reasonably  re- 
munerative employment.  But  they  can 
no  longer  enjoy  the  carefree  and  sheltered 
lives  which  they  formerly  led  and  which 
they  would  have  continued  to  enjoy  as 
long  as  they  lived  if  only  their  principal 
had  been  in  safe  and  capable  hands. 

It  is  a  natural,  but  a  dangerous,  thing  far 
women  to  intrust  their  money  to  friends  or 
relatives  for  investment.  They  should  be 
safeguarded  against  the  necessity  of  seeking 
an  individual  trustee,  for  many  a  man  who 


62        THE  HOUSE  OF  PROTECTION 

has  resisted  other  temptations  has  embezzled 
the  funds  of  trusting  women. 


Failure  of  the  "Iron-clad"  Trust  Agreement 

It  sometimes  happens  that  a  man  leaves 
his  property  with  a  trustee  and  makes 
careful  arrangements  to  provide  for  the 
permanent  administration  of  his  estate 
according  to  plans  which  he  outlines  in 
detail.  If  conditions  remain  always  favor- 
able to  the  plans  which  he  has  made,  the 
estate  may  be  kept  intact  and  made  to 
earn  a  good  return  indefinitely.  But  no 
man  can  be  sure  that  conditions  will  never 
change  for  the  worse.  Estates  left  under 
trust  agreements,  through  which  the  de- 
ceased had  thought  to  safeguard  his  bene- 
ficiaries, have  sometimes  suffered  as  the  re- 
sult of  restrictions  which  he  himself  imposed. 

A  number  of  years  ago  an  official  of  a 
large  Eastern  corporation  left  a  consid- 
erable estate,  most  of  which  was  in  the 
stock  of  the  corporation.  The  estate 
was  left  under  a  trust  agreement  with  a 
prominent  trust  company.  The  deceased's 
daughter  was  to  receive  one  half  of  the 


THE  HOUSE  OP  PROTECTION        63 

income  from  the  estate,  while  an  institu- 
tion was  to  get  the  other  half. 

Instead  of  leaving  the  trust  company  a 
certain  freedom  of  action  in  case  of  neces- 
sity, the  father  had  a  special  clause 
inserted  in  the  trust  agreement  providing 
that  no  part  of  the  estate  should  be  sold 
for  reinvestment  unless  the  daughter,  the 
institution,  and  the  trust  company,  all 
three,  agreed  that  the  proposed  change 
was  wise.  Such  a  provision  seemed  to 
leave  open  a  way  for  a  change  in  invest- 
ments if  necessary;  but  it  seemed  unlikely 
that  the  daughter,  the  institution,  and 
the  trust  company  would  all  three  agree 
on  an  unwise  course. 

The  stock  of  the  corporation  of  which 
the  estate  was  largely  composed  had  been 
worth  over  $200  a  share  for  a  long  time 
preceding  the  deceased's  death  and  had, 
for  many  years,  paid  dividends  of  10  per 
cent  to  12  per  cent.  However,  the  daugh- 
ter's husband,  a  good  business  man,  finally 
made  up  his  mind  that  the  stock  of  his 
father-in-law's  corporation  ought  to  be 
sold;  although  the  market  price  remained 
high  and  the  dividends  continued  satis- 


64        THE  HOUSE  OF  PROTECTION 

factory,  it  seemed  to  him  that  there  were 
conditions  which  pointed  to  a  possible 
decline  in  this  stock.  His  wife  agreed  to 
sell.  The  trust  'company  agreed  to  sell. 
The  institution  refused  to  sell. 

To-day  that  stock  is  worth  only  about 
$20  a  share,  or  less  than  one  tenth  of  what 
it  was  worth  at  the  time  the  trust  agree- 
ment was  made.  No  dividends  have  been 
received  in  years.  The  daughter  and  her 
husband — beginning  to  grow  old — had 
expected  the  trust  estate  would  support 
them  in  their  old  age.  Even  though  a  man 
uses  what  seem  to  him  to  be  extraordinary 
precautions  to  throw  safeguards  about  the 
estate  he  leaves  his  family,  there  are  dangers 
growing  out  of  changed  conditions  which  he 
may  not  be  able  to  foresee  and  which  the  very 
provisions  he  had  established  make  it  impos- 
sible to  avoid,  with  resulting  ruin  of  the 
estate. 

Extravagant  Spending 

There  is  one  other  danger  to  the  lump 
sum — the  unwise  or  extravagant  spending 
of  the  capital.  A  young  man,  insured  by 
an  agent  whom  the  author  knows,  died 


THE  HOUSE  OF  PROTECTION        65 

and  left  his  wife  just  $1,000  of  life  insur- 
ance. She  went  to  live  with  her  parents 
and  used  the  $1,000  to  buy  a  player  piano. 
A  few  days  ago  another  exactly  similar 
case  was  reported  in  Pittsburgh. 

One  afternoon,  a  few  years  ago,  while 
traveling  on  the  " Twilight  Limited"  from 
Minneapolis  to  Duluth,  the  author  fell 
into  conversation  with  a  man  from  Kansas 
City.  They  went  into  the  observation 
car  together  for  a  smoke.  The  stranger 
was  a  furniture  dealer,  and  furniture  was 
discussed  for  a  long  time,  when,  suddenly, 
he  asked  what  was  the  author's  business. 
When  he  learned  that  it  was  life  insurance, 
the  stranger  said,  "Well,  I  used  to  believe 
life  insurance  was  a  good  thing;  but  I 
don't  any  longer." 

"That,"  was  the  answer,  "is  a  remark 
we  don't  often  hear.  Practically  every- 
body believes  in,  and  carries  some,  life 


insurance." 


"Oh,  I  carry  life  insurance,"  he  said, 
"but  I  don't  know  why.  It  is  just  a 
gamble  whether  it  will  really  do  your 
family  any  good  or  not.  I'll  tell  you," 
he  continued,  "what  caused  me  to  lose 


66        THE  HOUSE  OF  PROTECTION 

faith  in  life  insurance.  Some  years  ago 
I  had  a  friend  in  Kansas  City.  He  was 
married  and  had  one  child,  a  daughter. 
He  owned  his  home,  made  a  good  living, 
and  did  all  he  could  to  make  his  family 
comfortable  and  happy,  denying  himself 
vacations  and  some  other  things  he  should 
have  had  in  order  to  have  more  to  spend 
on  his  family.  The  only  money  he  saved 
was  what  he  invested  in  the  premiums  on  a 
$50,000  life  insurance  policy.  Sometimes 
it  was  hard  to  meet  the  premiums  when 
they  fell  due,  but  he  always  paid  them, 
even  if  he  had  to  borrow  the  money. 
He  often  said  that  his  life  insurance  gave 
him  more  satisfaction  than  anything  else 
in  the  world,  for  he  knew  that  with  the 
insurance  money  and  the  home,  which 
was  free  of  incumbrance,  his  wife  and 
daughter  could  live  comfortably  if  any- 
thing happened  to  him. 

"He  died,  and  soon  things  began  to 
happen  in  the  old  home.  The  widow  was 
very  ambitious  for  her  daughter;  wanted 
her  to  succeed  socially  and  to  marry  well. 
But  she  thought  this  plan  couldn't  succeed 
if  they  lived  in  the  old  home,  a  comfort- 


THE  HOUSE  OF  PROTECTION        67 

able,  though  unpretentious,  house  in  a 
respectable,  but  not  fashionable,  street. 
So  she  bought  a  lot  in  a  new  section  in 
which  Kansas  City  society  was  gradually 
intrenching  itself,  and  built  an  expensive, 
though  small,  house.  And  then  one  day 
she  came  to  my  store  with  blue  prints  of 
the  floor  plans  and  said  she  was  going  to 
buy  new  furniture  and  wanted  to  get  it 
from  me  in  order  to  have  me  help  her 
select  it. 

"I  asked  her  to  give  me  an  idea  of  what 
kind  of  furniture  she  wanted.  She  began 
with  the  reception  room,  which  she  wished 
to  furnish  in  French  gold,  Louis  XVI.  I 
reminded  her  that  this  was  very  expen- 
sive, armchairs  at  $100  to  $250  each, 
sofas  at  $300  to  $750,  tables  and  other 
articles  accordingly,  and  suggested  some- 
thing simpler,  in  good  taste  and  compar- 
atively inexpensive.  But  she  would  have 
none  of  my  advice  and  finally  said:  Tve 
always  wanted  a  set  of  this  French  gold 
furniture.  This  is  the  first  time  I've  ever 
had  a  chance  to  have  it,  and  that's  what 
I'm  going  to  buy/ 

"  At  that  I  was  angry,  and  said:  'Then, 


68        THE  HOUSE  OF  PROTECTION 

madam,  you  can't  do  business  with  me. 
Your  husband  made  personal  sacrifices  in 
order  to  leave  you  the  insurance  which 
he  thought  would  take  care  of  you  and 
your  daughter  as  long  as  you  live,  and  you 
are  doing  all  you  can  to  defeat  his  purpose. 
He  was  my  friend  and  I  won't  be  a  party 
to  what  you  are  doing.77 

After  a  moment,  visibly  affected,  the 
furniture  dealer  added,  "That  woman 
never  would  speak  to  me  after  that  when 
I  passed  her  on  the  street;  and  to-day  she 
is  keeping  a  boarding  house  in  Kansas 
City." 

Of  course,  the  author  immediately 
explained  that  an  income  settlement 
would  have  prevented  such  a  disaster. 
When  it  dawned  on  the  man  what  was 
meant,  he  looked  first  surprised  and  then 
angry.  Then  he  smashed  his  fist  down 
on  his  chair  and  fairly  shouted:  "Then 
why  in  hell  don't  the  life  insurance  men 
tell  us  about  it?  I  have  insurance.  I 
didn't  know  about  this  income  proposi- 
tion. I  don't  believe  my  friend  knew  it. 
Hardly  a  week  passes  that  some  life  insur- 
ance man  doesn't  call  on  me,  and  none  of 


THE  HOUSE  OF  PROTECTION        69 

them  ever  mentioned  that  income  propo- 
sition/' 


Summarizing  Dangers  Which  Threaten  the 
Principal 

To  sum  up,  what  are  some  of  the  objec- 
tions to  the  lump-sum  settlement  as  illus- 
trated in  the  cases  we  have  cited? 

1.  The  beneficiary  does  not,  as  a  rule, 
invest  her   money   immediately.     It   lies 
idle  in  the  bank,  earning  nothing. 

2.  She  checks  on  her  principal  to  pay 
living  expenses,  sometimes  doing  this  until 
her  fund   is  materially  impaired  or  ex- 
hausted. 

3.  Relatives  are  often  ill  or  in  debt  and 
the  beneficiary  may  draw  on  her  principal 
to  help  them. 

4.  Relatives  may  ask  for  loans  to  put 
in   their   businesses.    Even   a   son   may 
borrow  to  start  in  business  or  a  daughter 
may  get  help  for  her  husband. 

5.  The  widow  may  be  anxious  to  con- 
serve her  funds  and  invest  them  safely. 
But  where  is  she  to  invest  her  money?     It 
is  a  puzzling  question.     She  gets  conflict- 


70        THE  HOUSE  OF  PROTECTION 

ing  advice  from  the  different  people.     Her 
situation  is  difficult  and  causes  her  worry. 

6.  She   may  receive  good  advice  and 
invest  in  approved  securities  which  turn 
out    badly.     Frequently    changed    condi- 
tions bring  failure  to  investments  which 
were  once  considered  safe  by  experts. 

7.  She  may  put  her  money  in  highly 
speculative  stocks.     She  hears  men  of  her 
acquaintance  talk  about  their  occasional 
successes  in  speculation  and  thinks  she 
may  do  as  well  as  they.     The  smallness 
of  her  income  makes  her  especially  anxious 
to  earn  the  large  profits  she  hears  about. 

8.  She  may  be  the  victim  of  crooked 
promoters  who  solicit  her  subscription  or 
who  reach  her  through  misleading  adver- 
tisements, promising  immense  profits  on 
small  capital. 

9.  She  may  intrust  her  funds  to  some 
friend  or  relative  who  proves  to  be  dis- 
honest. 

10.  She  may  purposely  not  invest  her 
money,  thinking  unwisely  that  she  should 
spend  it  on  her  children,  making  them  as 
comfortable  as  she  can,  as  long  as  the 
money  lasts. 


THE  HOUSE  OF  PROTECTION        71 

11.  She  may  throw  her  money  away  in 
reckless  living.  She  thinks  she  has  such 
a  lot  of  money,  and  there  are  so  many 
things  she  has  always  wanted  but  been 
unable  to  afford.  The  time  seems  finally 
to  have  come  when  she  can  gratify  her 
desires  and  ambitions. 


The  Safeguard 

Is  there  any  safeguard  against  these 
dangers?  Of  course  there  is.  We  know 
that  income  settlements  protect  the  bene- 
ficiary against  her  own  ignorance  and  weak- 
nesses, and  against  persons  who  would 
take  advantage  of  her.  Her  money  can't 
lie  idle;  it  begins  earning  from  the  very 
start.  She  can't  check  on  her  principal, 
for  it  never  gets  into  her  bank  account. 
She  can't  lend  to  her  relatives  to  assist 
them  in  their  business,  nor  can  she  give 
them  large  sums  of  money  to  help  them 
in  their  difficulties.  She  will  have  no 
investment  worries;  she  will  lose  no 
money  in  approved  investments  that 
change  for  the  worse,  or  in  speculative 
stocks.  She  will  be  safe  from  crooked 


72        THE  HOUSE  OF  PROTECTION 

promoters.  The  life  insurance  company 
holds  her  money;  she  can't  even  spend 
any  of  her  principal. 

If  it  is   possible  for  such  dangers  to 
threaten,  damage,  or  annihilate  the  lump 
sum,  and  if  they  are  avoided  under  the 
income  plans,  isn't  it  our  clear  duty  to 
use  income  settlements?    Not  for  every 
policy:   of  course  not.     The  widow  needs 
cash    to    pay   outstanding   bills,    funeral 
expenses,  a  mortgage,  administration  costs, 
and  inheritance  taxes.     But  income  set- 
tlements should  nearly  always  be  used  for 
policies  which  the  insured  carries  for  the 
purpose  of  providing  living  expenses  for 
his  widow  and  children — the  policies  he 
has  in  mind  when  he  says,  "I  have  bought 
protection  for  my  wife  and  children." 


Ill 

AUTHORITATIVE  EXAMPLE  AND  ADVICE 


Ill 

AUTHORITATIVE  EXAMPLE  AND  ADVICE 

IT  will  be  helpful  to  see  what  certain 
reliable  authorities  have  said  or  done 
in  the  matter  of  income  payments  to 
dependents : 

The  United  States  government  adopted 
the  income  settlement  for  War  Risk  pol- 
icies. A  newspaper  reported  recently  that 
seven  or  eight  mothers  in  Hartford,  Con- 
necticut, are  now,  each,  receiving  $57.50 
monthly  from  their  soldier  sons'  War  Risk 
policies,  and  there  are  thousands  of  fam- 
ilies in  the  various  states  who  are  receiv- 
ing this  War  Risk  insurance  income  every 
month. 

The  Mothers'  Pension  laws  of  many 
states  provide  not  lump  sum  payments, 
but  incomes  to  mothers  entitled  to  state 
assistance. 

The  Carnegie  Fund  provides  monthly 
pensions  to  retired  teachers. 


76        THE  HOUSE  OF  PROTECTION 

Andrew  Carnegie  at  one  time  held 
$3,137,384.20  intrusted  to  him  by  148 
widows  who  had  asked  his  assistance  in 
investments.  He  paid  them  6  per  cent 
interest.  Garrett  Brown,  an  insurance 
publisher,  called  Mr.  Carnegie's  attention 
to  income  policies,  and  he  wrote  to  Mr. 
Brown  as  follows:  "I  am  greatly  pleased 
to  hear  of  such  an  insurance  as  you 
describe.  .  .  .  This  is  a  great  step  in 
advance.  I  have  a  case  in  hand  to-day 
where  a  young  widow's  insurance  money 
was  handed  over  to  a  gentleman  for  invest- 
ment. He  is  now  bankrupt  and  the  poor 
woman  is  left  in  destitute  circumstances." 

All  of  Carnegie's  bequests,  under  his 
will,  to  members  of  his  family,  relatives, 
friends,  and  servants,  fifty  in  number, 
were  left  in  the  form  of  life  incomes,  includ- 
ing even  those  to  several  men  of  means 
and  business  experience.  The  incomes 
were  to  be  paid  from  invested  funds  of 
the  estate  or  by  purchasing  annuities  in 
life-insurance  companies  of  good  standing. 

The  late  J.  P.  Morgan's  bequests  to 
women  were  in  the  form  of  life  incomes. 

The  assistance  given  by  the  Episcopal 


THE  HOUSE  OF  PROTECTION        77 

Church  to  superannuated  clergymen  and 
the  widows  of  clergymen  is  in  the  form  of 
monthly  incomes. 

Judge  Henry  Hoover,  of  the  Probate 
Court  of  Cook  County,  Illinois,  said  to 
be  the  largest  single  probate  jurisdiction 
in  the  world,  is  quoted  as  saying:  "My 
experience  as  a  probate  judge  has  impressed 
upon  me  the  high  wisdom  of  the  income 
policy.  .  .  .  The  number  of  widows  who 
squander  is  appallingly  large.  .  .  .  The 
danger  of  dissipation  of  the  estate  is 
greater  in  small  than  in  large  estates. 
The  amount  of  the  estate  may  seem  to 
the  widow  too  small  to  yield  ample  income. 
Hence  the  appeal  to  "get-rich-quick" 
ventures,  to  investments  flaunting  oppor- 
tunities for  speculative  profit,  is  to  widows 
with  small  estates  particularly  alluring. 
...  As  a  student  of  conditions,  the  life- 
insurance  man  should  grasp  the  need  of  a 
guaranteed  fixed  income  to  those  unaccus- 
tomed to  manage  investments. 

"World's  Work"  Advice 

Several  years  ago  The  World's  Work 
published  an  account  of  a  letter  received 


78        THE  HOUSE  OF  PROTECTION 

from  one  of  its  subscribers.  His  brother 
had  died  three  years  before,  leaving  for 
the  support  of  his  widow  and  two  boys, 
thirteen  and  fifteen  years  old,  a  comfort- 
able home,  a  small  amount  of  savings  and 
investments,  and  $20,000  of  life  insurance. 

During  nearly  three  years  the  brother 
received  very  little  news  from  the  family. 
Once  he  heard  that  the  boys  had  been 
taken  out  of  the  public  schools  and  sent 
to  a  private  school.  About  a  year  before 
writing  to  the  magazine  he  had  learned 
that  the  older  boy  had  gone  to  work  and 
that  the  younger  one  was  back  in  the  pub- 
lic schools.  Finally,  he  was  called  on  for 
assistance  and  learned  the  story  of  the 
investment  of  his  brother's  estate. 

In  the  beginning  the  widow  had  invested 
in  good  mortgages.  Then  she  was  solicited 
by  a  local  lawyer,  young  and  enthusiastic, 
to  put  her  money  into  a  South  American 
plantation  company,  which  was  paying 
1  per  cent  a  month — 12  per  cent  a  year. 
With  this  great  increase  in  income  the 
widow  had  been  able  to  place  her  sons  in 
an  expensive  preparatory  school.  For  a 
time  the  family  enjoyed  their  prosperity. 


THE  HOUSE  OF  PROTECTION        79 

Then  came  bad  news.  The  company 
needed  money.  The  widow's  home  was 
mortgaged  to  protect  her  investment,  all 
in  vain,  and  the  family  was  now  in  need. 
The  older  boy  gave  up  his  education  and 
went  to  work.  The  only  security  of  any 
value  which  remained  was  one  which  was 
not  listed;  the  widow  had  been  unable 
to  find  anybody  who  knew  where  she  could 
sell  such  a  bond.  The  brother-in-law 
was  called  to  the  scene  of  the  catastrophe 
and  had  just  returned  home  when  he 
wrote  to  The  World's  Work  for  advice 
about  his  own  insurance.  He  said:  "What 
can  a  man  do  to  protect  his  own  family? 
My  own  wife  is  just  like  her — too  busy  in 
her  home  duties  to  learn  anything  about 
the  business  world.  It  seems  that  the 
better  wife  and  mother  a  woman  is,  the 
surer  she  is  to  be  an  easy  mark  for  sharpers, 
when  protection  is  removed." 

The  editor  answered  his  correspondent's 
question  as  follows :  "  The  simplest  and  the 
easiest  of  all  methods  to  guard  against 
the  unhappy  accidents  of  the  nature 
described  is  to  buy  life-insurance  policies 
that  provide  for  regular  payments  to  the 


80        THE  HOUSE  OF  PROTECTION 

beneficiary  at  stated  intervals — a  year, 
six  months,  a  month,  etc." 

Why  aren't  we  following  this  World's 
Work  advice?  Why  aren't  we  safeguarding 
our  beneficiaries  in  the  simple  way  recom- 
mended against  the  dangers  which  will 
surely  threaten  them  if  we  leave  our  life 
insurance  payable  in  a  lump  sum? 

The  pictures  outlined  above  are  not 
fiction.  They  are  facts  drawn  largely 
from  the  author's  experience  and  obser- 
vation and  the  experience  of  persons  he 
has  known.  They  are  not  isolated  cases. 
They  are  typical  of  thousands  and  thou- 
sands of  disasters  that  are  occurring  daily 
all  over  the  country.  They  aren't  found 
in  every  section  except  the  one  in  which 
you  live;  they  are  happening  every  year, 
perhaps  every  month,  in  your  own  town 
or  county. 


IV 

SUPERIORITY  OF  LIFE-INSURANCE 

MANAGEMENT  OF 
BENEFICIARIES'  FUNDS 


IV 


SUPERIORITY      OF     LIFE-INSURANCE      MAN- 
AGEMENT OF  BENEFICIARIES'  FUNDS 


TO-DAY  it  is  universally  recognized 
that  corporate  management  of  invest- 
ments is,  on  the  average,  by  far  the  safest. 
The  investments  of  the  bank,  the  savings 
bank,  the  trust  company,  and  the  life- 
insurance  company  are,  as  a  rule,  vastly 
safer  than  those  of  the  individual  investor; 
for  such  corporations  command  at  all  times 
expert  investment  skill  and  experience, 
and  the  depositor  or  beneficiary  has  many 
safeguards  against  losses  through  malad- 
ministration or  defalcation.  Individual 
judgment  is,  ordinarily,  a  poor  substitute 
for  the  combined  services  of  the  officials 
and  directors  of  financial  corporations 
such  as  those  named  above. 

Sometimes  a  man  arranges  to  have  a 
trust  company  hold  the  proceeds  of  life- 


84        THE  HOUSE  OF  PROTECTION 

insurance  policies  in  trust  for  his  bene- 
ficiaries; and  this  is  an  excellent  proce- 
dure, far  better  in  every  way,  as  a  rule, 
than  to  leave  the  money  to  the  beneficiary 
in  a  lump  sum.  But  the  life-insurance 
company  offers  some  special  advantages 
in  the  administration  of  life-insurance 
funds  intended  to  produce  income  for  the 
beneficiary. 

The  proceeds  of  a  policy  are  not  invested 
by  the  life-insurance  company  in  specific 
securities  as  is  done  by  an  individual  or 
a  trust  company.  On  the  contrary,  they 
are  mingled  with  the  total  assets  of  the 
company,  in  the  same  way  as  an  indi- 
vidual's deposits  in  a  savings  bank  are 
mingled  with  the  total  funds  of  the  bank. 
The  beneficiary  is  credited  with  the 
amount  of  money  accruing  from  the  pol- 
icy of  the  deceased,  and  her  funds  are 
invested  together  with  the  money  of 
thousands  of  other  persons,  policyholders 
and  beneficiaries,  each  person  having  a 
share  in  every  investment  in  the  propor- 
tion of  the  amount  of  his,  or  her,  credit 
to  the  total  amount  of  the  company's 
investments.  Thus  the  beneficiary  has  the 


THE  HOUSE  OF  PROTECTION        85 

enormous  advantage  secured  through  maxi- 
mum variety  or  diversification  of  investments. 
To  illustrate  this  point  let  us  compare 
the  ordinary  attempt  of  an  individual  to 
diversify  an  investment  of  $10,000  with 
the  distribution  of  investments  afforded 
the  proceeds  of  a  policy  left  with  a  life- 
insurance  company  on  some  income  plan. 
An  individual  desires  to  distribute  $10,000 
over  a  wide  field,  placing,  say,  $5,000  in 
real-estate  mortgages.  It  would  be  hard 
to  find  good  mortgages  in  smaller  amounts 
than  $1,000,  though  one  might  buy  real- 
estate  mortgage  bonds  in  smaller  denom- 
inations. The  other  $5,000  could  be 
invested  in  municipal  and  state  bonds 
and  first-mortgage  bonds  of  railroads  and 
public  utilities  of  the  highest  security. 
Most  people  would  invest  the  $10,000  in 
only  a  few  different  securities;  not  many 
would  divide  such  a  sum  into  more  than 
ten  portions;  a  few  might  invest  $500 
in  each  of  twenty  different  mortgages, 
bonds  and  stocks.  Occasionally  bonds 
as  small  as  $100  could  be  obtained;  and 
if  the  individual  should  divide  his  $10,000 
into  a  hundred  carefully  chosen  invest- 

7 


86        THE  HOUSE  OF  PROTECTION 

ments  of  $100  each,  he  would  secure  a 
high  degree  of  safety  as  compared  with 
the  more  common  plan  of  investing  in 
minimum  blocks  of  $500  or  $1,000. 

The  life-insurance  company  of  any  con- 
siderable size  has  many  hundreds  of  differ- 
ent investments,  and,  as  each  policyholder 
and  beneficiary  has  an  interest  in  each  of 
the  company's  investments,  it  is  clear  that 
he  obtains,  through  the  life-insurance  com- 
pany, a  remarkably  high  degree  of  invest- 
ment diversification,  with  a  correspondingly 
high  degree  of  safety  for  his  funds. 

Another  way  of  stating  the  case  is  that 
the  individual  benefits  from  the  law  of 
averages  applied  to  a  very  large  number  of 
investments.  The  life-insurance  company 
may  occasionally  have  some  individual 
investment  which  depreciates  in  intrinsic 
value.  But  this  depreciation  will,  as  a 
rule,  be  offset  by  the  appreciation  of  other 
investments,  the  average  being  satisfac- 
tory. Suppose,  however,  that  such  a 
depreciation  were  not  offset  by  an  improve- 
ment in  other  investments;  there  is  yet 
another  safeguard.  The  company  carries, 
and  to  comply  with  the  laws  must  carry, 


THE  HOUSE  OF  PROTECTION        87 

a  sufficient  surplus,  one  of  the  purposes  of 
which  is  to  absorb  any  possible  deprecia- 
tion in  investments. 

These  measures  of  protection  enable  the 
life-insurance  company  to  guarantee  not 
only  the  principal,  but  also  a  minimum 
rate  of  interest.  Since  the  beneficiary 
shares  in  every  investment,  she  shares 
also  in  the  income  from  each  investment, 
and  her  income  is  assured  by  the  law  of 
averages  as  applied  to  the  interest  on  all 
the  company's  investments.  Thus  the 
life-insurance  company  offers  the  husband, 
or  father,  who  desires  maximum  safety  for 
the  insurance  money  he  will  leave  to  his 
family,  that  rare  combination  of  a  guaran- 
tee that  the  funds  credited  to  the  beneficiary 
at  any  time  shall  be  worth  par,  and  that  a 
minimum  rate  of  interest  shall  be  paid. 

Beneficiary  Cannot  Cash  In,  or  Assign, 
Equity 

Under  income  policies  and  the  income 
settlements  of  other  policies,  the  life- 
insurance  company  will  agree,  if  so 
requested  by  the  insured,  to  pay  to  the 


88        THE  HOUSE  OF  PROTECTION 

beneficiary  only  the  stipulated  income 
installments,  or  interest,  and  not  to  pay 
the  principal  sum,  or  commuted  value, 
of  the  income,  even  though  the  beneficiary 
demands  it.  The  company  will  also  agree 
not  to  recognize  an  assignment  of  the 
commuted  value,  or  principal  sum.  Thus 
by  contract  the  insured  obtains  from  the 
life-insurance  company  a  guarantee  that 
his  insurance  will  be  distributed  only  on 
the  plan  which  he  has  selected.  Such  con- 
tracts, furnishing  a  high  degree  of  service, 
are  written  without  extra  cost. 


SUMMARY  OF  ADVANTAGES  OF 
INCOME  SETTLEMENTS 


SUMMARY  OF  ADVANTAGES  OF  INCOME 
SETTLEMENTS 

HPHE  advantages  of  using  income  plans 
1    instead  of  lump-sum  settlements  may 
be  briefly  summarized  as  follows: 

1.  The    income    begins     immediately. 
There  is  no  delay  in  selecting  investments. 

2.  The  productive  funds  are  never  idle, 
awaiting    investment     or     reinvestment. 
They  begin  to  earn  interest  at  once  and 
are  constantly  invested. 

3.  A  fixed  minimum  income  is  paid. 

4.  Since  the  income  is  regular,  the  ben- 
eficiary can  arrange  her  scale  of  living 
expenses  accordingly. 

5.  The  life-insurance  company's  service 
is  prompt  and  complete.     The  beneficiary 
has  nothing  to  do  but  indorse  her  checks 
each  month  and  deposit  them  in  her  bank 
account.    They  reach  her  at  any  address 
at  any  post  office  in  the  world. 


92        THE  HOUSE  OF  PROTECTION 

6.  The  life-insurance  company  does  all 
the  work  of  investing,  collecting  interest, 
and  keeping  investment  accounts. 

7.  The  life-insurance  company  can  pay 
income  in  equal  amounts  monthly,  whereas 
if  the  beneficiary's  personal  investments 
are  in  any  form  other  than  rents,  the 
income  will,  as  a  rule,  be  paid  quarterly, 
or  at  semi-annual  or  annual  intervals,  and 
will   usually   not   be   regular   as   to   the 
amount  of  the  income  payments,  so  that 
there  may  be  lean  as  well  as  fat  times  of 
the  year. 

8.  Creditors   cannot  attach  the  insur- 
ance  fund,   and   the   beneficiary   cannot 
successfully  anticipate  or  assign  it. 

9.  The  life-insurance  company  provides 
corporate  investment  and  supervision  of 
funds  in  place  of  individual  management. 
Experts  in  finance  take  the  place  of  inex- 
perienced investors. 

10.  Corporate  responsibility  and  relia- 
bility are  vastly  superior  to  the  respon- 
sibility and  reliability  of  individuals  who 
might  assist  the  beneficiary  in  managing 
investments. 

11.  The  companies  are  limited  by  the 


THE  HOUSE  OF  PROTECTION        93 

laws  of  many  states  to  certain  types  of 
investments  that  afford  high  security. 

12.  From  time  to  time  state  insurance 
departments    inspect    and    appraise    the 
investments    of   the    life-insurance    com- 
panies. 

13.  The  funds  of  the  beneficiary  are 
mingled  with  the  life-insurance  company's 
total  assets,  instead  of  being  invested  in 
a   few   specific   securities   on   which   the 
safety  of  the  money  must  depend.    Thus, 
if  the  beneficiary  has  an  interest  of  $10,000, 
no  particular  $10,000  investment  is  hers; 
but  we  might  say  that  any  $10,000  of  the 
company's  money  is  hers. 

14.  The  life-insurance  company  carries 
a  surplus  in  excess  of  its  liabilities  for  the 
purpose  of  safeguarding  policyholders  and 
beneficiaries  against  possible  losses  of  prin- 
cipal or  interest.    Thus  principal  and  a 
minimum  rate  of  interest  are  guaranteed. 


VI 

PICTURE  OF  LIFE-INSURANCE 
SERVICE 


VI 

A  PICTURE  OF  LIFE-INSURANCE  SERVICE 

CONTRAST  the  dangers  described  in 
\~J  the  foregoing  pages  with  the  follow- 
ing picture  of  life-insurance  protection :  Mr. 
Doe  is  insured  for  the  benefit  of  his  wife, 
his  son,  and  his  daughter.  He  dies  when 
his  wife  is  thirty-five  years  old,  his  son 
ten,  and  his  daughter  five.  Immediately 
after  his  death  the  agent  of  the  life- 
insurance  company  assists  in  the  prepar- 
ation of  the  necessary  papers,  and,  within 
a  few  days,  delivers  to  Mrs.  Doe  a  check 
for  $6,250. 

"Mrs.  Doe,"  he  says,  "here  is  a  check 
for  $6,250,  the  first  of  many  payments 
which  our  company  will  make  to  you  in 
accordance  with  instructions  given  by 
Mr.  Doe.  And  here  is  a  copy  of  the  memo- 
randum which  you  found  with  his  policies 
the  other  day."  Mrs.  Doe  reads  again 


98        THE  HOUSE  OF  PROTECTION 

the  following  memorandum,  which  is  ad- 
dressed to  her : 

"Six  thousand  dollars  of  my  insurance 
is  to  be  paid  in  cash.  I  estimate  that  it 
will  take  at  least  $5,000  to  pay  my  out- 
standing current  bills,  inheritance  and 
income  taxes,  and  my  funeral  expenses. 
The  additional  $1,000  is  for  the  purpose 
of  increasing  your  first  year's  income. 
You  will  receive  a  regular  monthly  income 
of  $250 — $3,000  a  year — as  long  as  you 
live,  plus  some  additional  interest  for  the 
first  nineteen  years.  But  during  the  first 
year  after  my  death  it  will  probably  be 
harder  for  you  to  manage  than  it  will  be 
later;  for  you  will  have  to  adjust  your 
living  expenses  to  a  reduced  scale.  If, 
therefore,  the  bills  to  be  paid  after  my 
death  do  not  exceed  $5,000,  you  will  have 
over  $4,000  to  live  on  during  the  first 
year  and  at  least  $3,000  a  year  each  year 
thereafter,  as  long  as  you  live." 

The  agent  explains  that  the  check  for 
$6,250  includes  also  the  first  monthly  pay- 
ment of  $250. 

A  month  passes  and  one  day  the  agent 
telephones  Mrs.  Doe.  "Mrs.  Doe,"  he 


THE  HOUSE  OF  PROTECTION        99 

asks,  "did  you  receive  a  check  from  our 
company  to-day?77 

' '  Yes, ' '  she  replies.  ' '  It  came  in  the  mail 
this  morning  and  I  have  already  deposited 
it  in  the  bank." 

"It  was  for  $250,  wasn't  it?" 

"Yes,  it  was;  everything  was  all  right. 
I  didn't  even  have  to  sign  any  receipt. 
All  I  had  to  do  was  to  make  the  deposit." 

Month  after  month,  year  after  year, 
checks  for  $250  were  delivered  to  Mrs. 
Doe  promptly  by  the  postman.  All  she 
had  to  do  was  to  deposit  the  checks  in 
her  bank.  She  was  never  obliged  to  spend 
any  time  considering  investments.  The 
stock  market  never  gave  her  any  worry. 
The  passing  of  stock  dividends  caused  her 
no  embarrassment.  Even  in  times  of  busi- 
ness depression  she  never  lost  a  moment's 
sleep  over  her  money.  She  had  no  rents  to 
collect  from  tenants.  She  had  no  houses 
to  keep  in  repair.  She  felt  no  anxiety  as 
to  whether  tenants  would  pay  promptly. 

Every  month,  year  after  year,  her  check 
for  $250  was  brought  by  the  postman. 
The  arrival  of  her  monthly  check  was  as 
regular  as  time  itself. 


100      THE  HOUSE  OF  PROTECTION 

One  day,  in  the  month  of  August  of  a 
certain  year,  when  she  answered  a  tele- 
phone ring,  Mrs.  Doe  heard  the  life  under- 
writer saying:  "Mrs.  Doe,  you  know  your 
husband  carried  special  policies  for  the 
education  of  both  the  children.  If  possi- 
ble, I  should  like  to  see  you  and  Donald 
to-day  about  his  educational  fund."  An 
appointment  was  made,  and  at  the  hour 
agreed  upon  Mrs.  Doe  and  Donald,  now 
eighteen  years  old,  received  the  agent  in 
their  little  parlor. 

" Donald,"  he  said,  "your  father  ex- 
pected that  you  would  enter  college  this 
fall.  He  arranged  to  have  our  company 
begin  now  to  pay  you  a  semi-annual  in- 
come under  the  educational  policy  which 
he  carried  for  the  purpose  of  guaranteeing 
you  the  means  of  getting  a  college  educa- 
tion. You  will  receive  a  little  more  than 
five  hundred  dollars  every  six  months  for 
five  years. 

"Your  father  died  eight  years  ago.  By 
his  direction  our  company  has  been  accu- 
mulating interest  on  your  $5,000  educa- 
tional policy.  It  was  your  father's  pur- 
pose, if  he  died  before  you  were  old  enough 


THE  HOUSE  OF  PROTECTION'     101 

to  go  to  college,  to  have  the  accumulated 
interest  on  your  policy  paid  to  your 
mother  just  prior  to  your  entering  college, 
in  order  that  she  might  have  the  funds  to 
outfit  you  for  college.  The  accumulated 
interest  is  enough  to  do  this  and  to  leave 
a  nice  sum  for  a  savings-bank  account. 
The  total  is  about  two  thousand  dollars." 

And  so,  when  the  time  came,  Donald 
entered  college  with  new  clothes  and  the 
money  to  furnish  his  room  nicely,  and  a 
little  spending  money  besides.  And,  fol- 
lowing the  agent's  advice,  there  was  $14  00 
in  the  savings  bank  earning  compound 
interest  to  create  a  nest  egg  for  Donald. 

When  Mary  was  eighteen  years  old 
the  underwriter  came  again  to  see  her 
and  her  mother.  "Mary,"  he  said,  "you 
know  your  father  provided  life  insurance 
to  make  it  certain  that  you  might  receive 
a  good  education  and  have  a  certain 
degree  of  independence.  He  and  I  talked 
of  your  future  when  you  were  only  two 
years  old.  (You  know  you  were  only 
five  when  he  died.)  He  wasn't  able  to 
leave  you  a  large  income,  but  he  took  out 
a  special  policy  of  $15,000  for  you,  which 

8 


1'02      THE  HOUSE  OF  PROTECTION 

he  arranged  should  be  paid  to  you  on  an 
income  basis  beginning  when  you  were 
eighteen  years  old.  That  $15,000  has 
been  drawing  compound  interest  at  better 
than  4  per  cent  for  thirteen  years  and  now 
amounts  to  over  twenty-five  thousand 
dollars. 

"  Carrying  out  your  father's  orders, 
our  company  will  pay  you  a  life  income, 
guaranteed  to  be  over  one  thousand  dollars 
a  year.  This  will  be  increased  by  surplus 
interest  earnings  for  nineteen  years.  I 
find  that  your  first  year's  income  will  be 
over  twelve  hundred  dollars,  and  this  will 
gradually  decrease  until  it  reaches  about 
one  thousand  dollars  for  the  twentieth 
year  and  every  year  thereafter  as  long  as 
you  live." 

The  agent  has  passed  away.  Mrs.  Doe 
is  seventy-five  years  old,  still  receiving 
$250  a  month  from  her  husband's  insur- 
ance. Donald  is  fifty  years  old  and  Mary 
is  forty-five;  both  of  them  are  married 
and  have  children.  Mary's  husband  died 
several  years  ago.  He  had  not  been  very 
successful  in  business  and  left  only  a 
small  estate.  But  she  continues  to  receive 


THE  HOUSE  OF  PROTECTION      103 

the  life  income  which  her  father  provided 
for  her.  Though  he  did  not  anticipate 
that  some  day  his  insurance  might  aid 
his  daughter  in  the  support  of  his  grand- 
children, he  did  anticipate  that  an  income 
settlement  would  always  stand  her  in  good 
stead,  no  matter  how  long  she  might  live 
or  what  might  be  her  situation. 


VII 

THE  HOUSE  OF  PROTECTION 

...  a  wise  man,  which  built  his  house  upon  a 
rock. 

And  the  rain  descended  and  the  floods  came  and 
the  winds  blew  and  beat  upon  that  house;  and  it 
fell  not;  for  it  was  founded  upon  a  rock. 

— MATTHEW  vii:  24,  25. 


VII 

THE  HOUSE  OF  PROTECTION 

ET  us  not  stop  with  our  plan  of  pro- 
tection incomplete — with  a  pile  of 
bricks  and  mortar.  Let  us  build  The 
House  of  Protection  on  a  firm  foundation, 
and  make  it  all  ready  for  the  widow  and 
the  children  to  move  in  immediately  when 
the  father  is  taken  away.  It  will  be  snug 
and  warm;  rainproof  and  stormproof; 
theirs  for  life,  or  for  as  many  years  as  the 
father  was  able  to  afford.  What  a  won- 
derful House  of  Protection!  Not  only  is 
the  rent  paid,  but  the  grocer  puts  food 
in  the  larder;  new  clothes  are  hung  in 
the  closets  from  year  to  year;  the  coal 
man  fills  the  bins  in  the  cellar;  the  doctor 
calls  and  makes  the  sick  ones  well.  And 
the  bills?  Why,  all  these  things  go  with 
The  House  of  Protection.  Father  paid 
these  bills  in  advance  with  the  monthly 
income  policy. 


PART  II 

"HOW  MUCH  LIFE  INSURANCE 
SHOULD  I  CARRY?" 


HOW  MUCH  LIFE  INSURANCE  SHOULD  I 
CARRY? 

F^ERHAPS  there  is  no  problem  in  secur- 
1  ing  life  insurance  concerning  which 
the  average  man  is  more  uncertain  than 
that  which  is  presented  by  the  apparently 
simple  question,  "How  much  life  insurance 
should  I  carry?" 

What  is  the  basis  of  his  decision  that 
he  wiU  insure  for  $5,000  or  $10,000  or 
$50,000?  Sometimes  he  simply  estimates 
roughly  that  he  can  carry  a  certain  amount 
of  insurance  without  too  great  a  sacrifice 
of  other  things.  He  may  select  $5,000 
just  because  it  is  a  round  figure.  Perhaps 
the  underwriter  has  submitted  a  plan  for 
$10,000  and  the  whole  interview  has  cen- 
tered about  this  amount,  with  the  result 
that  when  the  client  takes  favorable  action 
he  adopts  the  entire  plan  submitted,  includ- 


112      THE  HOUSE  OF  PROTECTION 

ing  the  amount,  or  he  decides  to  take  just 
one  half  of  what  the  agent  proposed. 

It  is  true,  also,  that  many  life  under- 
writers use  no  scientific  method  of  deter- 
mining the  amount  of  insurance  their 
clients  need.  There  must,  however,  be 
a  correct  way  of  arriving  at  the  pro- 
per amount  of  life  insurance  for  a  given 
situation. 

The  Life-insurance  Yardstick 

When  you  decide  to  purchase  any  com- 
modity, you  wish  to  be  sure  that  you  get 
just  the  quantity  you  need — no  more  and 
no  less.  If  you  are  buying  the  material 
with  which  to  make  your  child  a  dress  or 
a  coat,  you  know  just  how  much  you  will 
need;  for  you  have  taken  certain  meas- 
urements, and  the  cloth  is  measured 
accordingly. 

Why  shouldn't  the  same  method  be 
used  in  securing  life  insurance?  If  you 
desire  insurance  to  provide  living  expenses 
for  your  wife  and  children,  of  course  you 
wish  to  secure  enough  to  pay  for  their 
rent,  groceries,  meat,  milk,  clothing,  coal, 
electric  light  and  gas,  doctor's  and  den- 


THE  HOUSE  OF  PROTECTION      113 

tist's  bills,  as  well  as  bills  for  books,  tele- 
phone, recreation,  and  other  essentials. 
If  you  can  afford  it,  you  will  carry  enough 
life  insurance  to  pay  the  monthly  bills  for 
all  these  things. 

How  are  you  going  to  judge  the  amount 
of  life  insurance  required  for  these  neces- 
sities? Obviously,  by  estimating  the  cost 
of  actual  living  expenses.  The  bills  for 
most  of  the  above  items  will  be  more  or 
less  regular,  month  in  and  month  out. 
The  family's  bills  will  come  in  at  the  end 
of  each  month,  just  as  they  now  come  to 
you.  If  you  were  living  on  the  income 
from  an  estate  of  $100,000,  and  not  on 
your  earnings,  would  you  estimate  your 
annual  buying  power  by  thinking,  "I 
can  spend  so  much,  since  I  have  $100,000?" 
By  no  means.  You  would  say,  "I  have 
an  income  of  $6,000  a  year.  I  am  going 
to  save  $1,500.  Therefore,  I  have  $4,500 
to  spend."  You  would  measure  your 
annual  buying  power  by  your  income. 

How  easy  it  is  to  obscure  the  permanent 
buying  power  of  capital  by  speaking  of 
the  capital  itself  instead  of  the  income. 
Each  $1,000  of  principal,  yielding  6  per 


114      THE  HOUSE  OF  PROTECTION 

cent  interest,  produces  $5  a  month.  The 
permanent  buying  power  of  $1,000  at  6  per 
cent  is  only  $5  a  month.  Yet  the  average 
person  attaches  more  value  to  a  sum  of 
$1,000  than  to  $5  a  month,  although,  in 
terms  of  permanent  buying  power,  they 
are  one  and  the  same  thing  (at  6  per  cent). 

The  buying  needs  of  the  family  should  be 
measured  in  terms  of  income  and  not  in 
terms  of  capital.  Most  men  say,  "I  have 
$10,000,  or  $30,000,  or  $100,000  of  insur- 
ance protection  for  my  family/'  But  that 
remark  isn't  any  more  intelligible  than 
would  be  the  statement,  "I  have  bought 
$5  or  $10  worth  of  cloth  to  make  my  child 
a  coat." 

You  would  always  measure  the  cloth  in 
yards,  for  in  no  other  way  could  you  tell 
whether  you  were  getting  enough  or  not; 
and  we  can  understand  how  much  pro- 
tection we  have  for  our  families  only  if 
we  measure  the  protection  by  monthly 
income.  If  you  say,  "I  have  $100  a  month 
of  income  insurance  for  my  family/'  you, 
or  anyone  else,  will  understand  at  once  that 
you  have  arranged  to  pay  bills  amounting 
to  $100  for  your  family  every  month. 


THE  HOUSE  OF  PROTECTION      115 

The  monthly  income  is  the  yardstick  of 
life-insurance  protection.  Capital  does 
not  measure  the  family's  ability  to  pay 
their  bills;  but  the  monthly  income  does. 


I  Have  $10,000  of  Life  Insurance 

Suppose  a  client  tells  a  life  under- 
writer that  he  has  all  the  insurance  he 
needs — say,  $10,000.  It  is  the  agent's 
duty  to  get  out  his  yardstick  and  measure 
his  client's  insurance  protection  so  that 
he  will  understand  clearly  what  provision 
he  has  made.  The  agent  should  not 
criticize  his  client  because  he  carries  only 
$10,000  of  insurance,  for  the  client  is 
using  a  false  measure  and  may  not  realize 
just  what  the  $10,000  will  do.  But  sup- 
pose the  agent  should  say,  "Mr.  Doe, 
you  have  made  a  good  beginning  on  your 
insurance  program;  $10,000  at  6  per  cent 
will  yield  $600  a  year,  or  $50  a  month. 
That  will  pay  the  rent.  Let  us  call  that 
policy  your  family's  'rent  policy.'  You 
will  want  to  provide  for  the  groceries,  too, 
of  course;  that  means  at  least  another 
$50  a  month,  another  $10,000  of  insur- 


116      THE  HOUSE  OF  PROTECTION 

ance.  Perhaps,  an  additional  $50  a  month 
($10,000  of  insurance)  will  furnish  cloth- 
ing and  other  personal  necessities;  and  it 
will  probably  require  $50  a  month  more 
to  pay  for  heat  and  light,  doctor's  and 
dentist's  bills,  elementary  education,  va- 
cation, recreation,  and  many  other  ex- 
penses." In  this  way  the  buyer  would 
see  his  present  insurance  in  its  true  pro- 
portions, and  would  also  quickly  under- 
stand how  much  insurance  he  should  have. 
Everything  we  purchase  has  its  proper 
standard  of  measure.  We  measure  butter 
by  the  pound,  coal  by  the  ton,  railroad 
transportation  by  miles  or  kilometers, 
gasoline  by  the  gallon.  Our  insurance,  or 
our  insurance  needs,  should  always  be  meas- 
ured by  the  insurance  yardstick,  the  monthly 
income,  or,  still  better,  by  the  estimated 
amount  of  monthly  bills  for  specific  items 
of  expense. 

Using  the  Budget  to  Measure  Protection 

Measuring  life-insurance  needs  by  the 
estimated  amount  of  the  monthly  bills 
may  be  called  the  budget  method.  It 


THE  HOUSE  OF  PROTECTION      117 

consists  in  determining  the  amount  of 
money  the  family  will  require  for  each  of 
the  various  items  of  living  expense.  Every 
man  and  woman  should  adopt  the  budget 
system  in  fixing  his  or  her  own  living 
expenses  and  in  determining  what  he  or 
she  can  save  regularly  out  of  his  earnings. 
The  budget  is  commonly  used  in  business. 
The  use  of  the  budget  infixing  one's  personal 
expenses  and  margin  of  savings  is  simply 
putting  personal  finances  on  a  business  basis. 

In  undertaking  a  new  business  one  of 
the  first  and  most  important  things  to  do 
is  to  estimate  expenses.  This  is  done  by 
itemizing  the  materials  or  stock  that  will 
have  to  be  bought,  the  labor  that  will  be 
required,  and  the  overhead,  and  setting 
down  the  cost  of  each  item.  With  such 
an  estimate  or  budget  before  you,  it  is  not 
difficult  to  determine  the  amount  of  money 
necessary  to  start  the  business  and  the 
monthly  amount  that  will  be  needed  for 
overhead  charges,  etc. 

The  same  method  of  determining  the 
minimum  income  needs  of  one's  family 
will  make  it  easy  to  fix  the  amount  of 
insurance  necessary  to  give  the  family 


118      THE  HOUSE  OF  PROTECTION 

life-insurance  protection.  It  is  easy  for 
a  husband  or  father  to  make  a  list  of  the 
actual  items  of  expense  which  his  family 
will  be  obliged  to  meet,  if  they  are  to  live 
in  reasonable  comfort. 

To  use  an  old  illustration,  suppose  you 
were  going  away  on  a  long  business  trip 
for  six  months  or  a  year,  say  to  South 
America  or  around  the  world,  and  that 
your  family  were  going  to  stay  at  home. 
What  provision  would  you  make  for  their 
living  expenses  during  your  absence?  You 
would  probably  first  make  a  list  of  your 
average  monthly  bills  or  total  up  your 
last  year's  expenses.  Then,  if  one  of  the 
children  expected  to  enter  college  or  any 
other  special  expense  had  to  be  met  during 
your  absence,  you  would  add  this  to  the 
amount  estimated  for  regular  living 
expenses.  You  would  deposit  in  the  bank 
enough  to  cover  the  family's  estimated 
expenses  while  you  were  away,  or  you 
would  arrange  to  have  a  certain  sum, 
based  on  the  budget,  deposited  to  your 
wife's  account  every  month. 

The  same  method  is  the  only  one  by 
which  we  can  find  the  correct  answer  to  the 


THE  HOUSE  OF  PROTECTION      119 

question,  "How  much  life  insurance  do  I 
need  for  the  protection  of  my  family?" 


Provision  for  Paying  Bills  as  They  Fall  Due 

Life-insurance  protection  is  provision  for 
the  family's  reasonable  expenses  in  such  a 
way  that  the  correct  amount  of  money  is 
payable  to  the  family  at  the  time  that  this 
money  is  needed  for  specific  expenses. 

When  a  man  dies,  for  example,  there  is 
usually  a  large  amount  of  money  to  be 
paid  out  at  once.  He  has,  as  a  rule,  been 
seriously  ill  for  a  considerable  time.  Reg- 
ular monthly  bills  may  have  accumulated 
for  two  or  three  months,  especially  if  his 
credit  has  been  good.  His  funeral  expenses 
amount  to  a  large  sum;  for  the  family 
rarely  spares  any  cost,  often  spending 
much  more  than  they  can  afford. 

Then  there  is  the  cost  of  administering 
the  estate.  The  Federal  and  state  inher- 
itance taxes  require  cash,  and  very  few 
estates  contain  enough  cash  in  bank  for 
such  purposes.  There  are  only  two  ways 
in  which  one  may  be  sure  that  all  these 
obligations  can  be  liquidated  without  sell- 


120      THE  HOUSE  OF  PROTECTION 

ing  valuable  property  at  the  prevailing 
market  price,  good  or  bad — viz.:  (1)  to 
carry  constantly  an  excessive  cash  balance 
in  the  bank,  which  the  good  business  man 
won't  do  and  the  average  man  can't  do; 
and  (2)  to  provide  an  ample  cash  payment 
of  life  insurance,  available  immediately, 
at  death  without  any  complication,  diffi- 
culty, or  sacrifices  of  property  value. 

Insurance  of  $500  to  $100,000,  or  more, 
depending  on  the  requirements  of  the 
individual  case,  should  be  payable  in  cash 
to  meet  the  obligations  due  immediately 
after  death. 

These  first  bills  which  the  widow  must 
pay  are  really  her  husband's  last  bills.  A 
month  later  she  receives  her  first  bills — 
the  first  bills  of  her  own  administration. 
There  should  be  funds  due  at  that  time  to 
pay  these  bills.  At  the  end  of  the  second 
month  she  will  have  a  second  batch  of  bills; 
and  she  should  have  another  income  payment 
with  which  to  pay  them.  Every  month,  as 
long  as  she  lives,  there  will  be  bills  to  pay; 
and  every  month,  if  possible,  as  long  as  she 
lives,  the  widow  should  have  an  income 
check,  punctual,  regular,  guaranteed. 


THE  HOUSE  OF  PROTECTION      121 

Later  the  time  will  come,  perhaps, 
when  one  of  the  children  is  to  enter  col- 
lege (or  a  business  or  professional  school). 
For  the  next  several  years  the  family's 
expenses  will  be  increased.  A  special 
income  should  begin  when  the  son  or 
daughter  enters  college,  and  continue  for 
the  four  years,  or  longer  in  case  of  pro- 
fessional education.  After  two  or  three 
years,  a  second  son  or  daughter  might  be 
ready  for  college.  Again  there  should  be 
an  increase  in  income  for  four  or  five  years 
to  cover  the  further  increase  in  expenses. 

Isn't  it  clear  that  the  husband  or  father 
who  seeks  an  answer  to  the  question, 
"How  much  life  insurance  do  I  need?" 
will  find  a  quick  and  correct  answer  by 
making  up  a  budget  which  will  fairly 
represent  the  minimum  expenses  his  family 
will  have  to  meet  if  they  are  to  enjoy 
reasonable  comfort  and  if  the  children 
are  to  be  properly  educated? 

United  States  Treasury  Home  Budgets 

It  will  be  helpful  to  examine  specimen 
family  budgets.  Below  are  several  bud- 


122      THE  HOUSE  OF  PROTECTION 

gets  reproduced  from  an  article  by 
Benjamin  R.  Andrews  of  Columbia  Uni- 
versity, which  appeared  in  the  "Thrift" 
number  of  the  Annals  of  the  American 
Academy  of  Political  and  Social  Science 
(January,  1920).  Mr.  Andrews  says: 
"The  following  standard  budgets  were 
recently  prepared  under  the  general  direc- 
tion of  the  present  writer  for  the  Savings 
Division  of  the  United  States  Treasury 
Department.  The  chief  credit  for  them 
is  due  to  Mrs.  Alice  0.  Norton,  editor  of 
the  Journal  of  Home  Economics,  who  was 
ably  assisted  by  Miss  S.  Maria  Elliott 
of  Simmons  College.  Acknowledgment 
should  also  be  given  for  the  advice  and 
suggestions  of  many  of  the  foremost  home 
economists  in  the  United  States." 

A  number  of  persons  to  whom  the 
author  has  shown  these  budgets  have  said 
they  doubted  if  the  items  of  rent  were 
large  enough.  It  must  be  noted,  however, 
that  these  budgets  have  been  prepared  on  a 
thrift  basis.  It  is  probably  true  that 
most  families  would  not  be  satisfied  with 
the  allotments  made  for  rent;  but  it  is 
also  true  that  most  American  families  are 


THE  HOUSE  OF  PROTECTION       123 

not  economizing  as  they  should.  In  order 
to  save  substantial  amounts  it  is  necessary 
to  make  sacrifices. 

No.  1—11,200  A  YEAR— $100  A  MONTH 


NUMBER  IN  THE  FAMILY 

Two 

Three 

Four 

Five 

Savings  

$10 
16 
27 
13 
10 
6 
10 
8 

$7 
16 
34 
14 
9 
5 
8 

$5 
16 
41 
15 
8 
3 
6 
6 

$3 
16 
48 
15 
7 
1 
5 
5 

Rent  

Food  

Clothing  

Housekeeping  expenses.  .  . 

Churches,  charities  

Health,  recreation,  education 
Personal,  miscellaneous  

. 

Total  for  month.  .  .                      $100 

$100 

$100 

$100 

No.  2— $1,800  A  YEAR— $150  A  MONTH 


NUMBER  IN  THE  FAMILY 

Two 

Three 

Four 

Five 

$27 
20 
37 
20 
11 
10 
12 
13 

$21 
20 
44 
20 
12 
9 
12 
12 

$150 

$15 
22 
51 
21 
12 
8 
10 
11 

$10 
22 
58 
22 
12 
7 
10 
9 

Rent  .  .  . 

Food  

Clothing           .    .    • 

Housekeeping  expenses  
Churches,  charities  . 

Health,  recreation,  education 
Personal,  miscellaneous  

Total  for  month  

$150 

$150 

$150 

No.  3— $2,400  A  YEAR— $200  A  MONTH 


NUMBER  IN  THE  FAMILY 

Two 

Three 

Four 

Five 

Savings,  ......     . 

$48 
2 
25 
40 
22 
18 
15 
14 
16 

$40 
1 
25 
48 
25 
20 
12 
14 
15 

$31 

27 

56 
28 
20 
11 
13 
14 

$21 

27 
64 
30 
20 
11 
13 
14 

Taxes  (Federal  Income)  
Rent  

Food  

Clothing 

Housekeeping  expenses  
Churches,  charities  

Health,  recreation,  education 
Personal,  miscellaneous  

Total  for  month.  .  . 

$200 

$200 

$200 

$200 

124       THE  HOUSE  OF  PROTECTION 


No.  4— $3,000  A  YEAR— $250  A  MONTH 


NUMBER  IN  THE  FAMILY 

Two 

Three 

Four 

Five 

Savings  

$65 
5 
30 
40 
30 
25 
19 
18 
18 

$53 

30 
48 
33 
30 
17 
18 
17 

$40 
3 
35 
56 
36 
32 
16 
16 
16 

$30 
2 
35 
64 
39 
32 
16 
16 
16 

Taxes  (Federal  Income)  
Rent  

Food 

Clothing  

Housekeeping  expenses  
Church,  charities  

Health,  recreation,  education 
Personal,  miscellaneous  

Total  for  month  

$250 

$250 

$250 

$250 

No.  5— $5,000  A  YEAR— $416.66  A  MONTH 


NUMBER  IN  THE  FAMILY 


Two 

Three 

Four 

Five 

Savings 

$125  66 

$105  66 

$90  66 

$76  66 

Taxes  (Federal  Income)  .... 
Rent  

15.00 
50.00 

14.00 
50.00 

13.00 
6000 

12.00 
60  00 

Food         

4500 

55  00 

65  00 

75  00 

Clothing  

45.00 

50.00 

5500 

6000 

Housekeeping  expenses  
Church,  charities  

50.00 
36.00 

60.00 
33.00 

63.00 
2700 

65.00 
25  00 

Health,  recreation,  education 
Personal,  miscellaneous  

25.00 
25.00 

25.00 
24.00 

22.00 
21.00 

22.00 
21.00 

Total  for  month  

$416.66 

$416.66 

$416  66 

$416  66 

How  to  Use  Specimen  Budgets 

These  budgets  may  be  helpful  in  two 
ways: 

(1)  If  you  are  considering  insurance 
and  think  it  may  be  difficult  to  finance 
the  premium  deposits,  the  budgets  may 
assist  you  in  apportioning  your  expenses 
so  that  you  can  save  enough  to  adopt  a 
substantial  life-insurance  program.  A 


THE  HOUSE  OF  PROTECTION      125 

profitable  evening  may  be  spent  in  analyz- 
ing the  budget  which  is  nearest  to  your 
own  income  and  comparing  these  items 
for  various  expenditures  with  what  you 
are  now  spending.  If  your  income  exceeds 
$5,000,  budget  No.  5  will  serve  as  a  general 
pattern  by  which  you  may  make  up  a 
budget  of  your  own. 

(2)  If  you  are  trying  to  decide  the 
amount  of  a  life-insurance  income  for  your 
family,  it  will  help  you  greatly  to  study 
these  budgets.  Begin  with  Budget  No.  1 
and  see  if  you  think  that  there  are  any 
unnecessary  items  listed,  or  that  the 
amounts  are  too  large.  If  you  believe 
that  your  family  could  not  live  comfortably 
on  Budget  No.  1,  consider  the  others 
until  you  work  out  a  budget  which  you 
think  would  provide  reasonably  for  your 
family.  Disregard  the  savings  item,  for 
you  will  hardly  plan  to  have  them  save 
anything  out  of  the  insurance  income. 
But  you  will  probably  wish  to  increase 
the  allowance  for  rent.  For  example, 
under  Budget  No.  1,  if  we  omit  the  savings 
item  and  increase  the  rent  to  $25,  the 
total  of  the  budgets  will  be  $99,  $102, 


126      THE  HOUSE  OF  PROTECTION 

$104,  and  $106,  respectively,  for  families 
of  two,  three,  four,  or  five  persons. 

Budget  No.  1  may  be  considered  the 
minimum  income  required  by  families 
who  desire  to  live  in  wholesome  surround- 
ings in  the  cities.  A  slightly  smaller 
minimum  might  possibly  suffice  in  places 
where  rents  and  food  are  lower. 

The  Smaller  Insurance  Income 

These  budgets  also  help  us  to  see  clearly 
the  value  of  small  insurance  incomes. 
For  example,  a  father  desires  to  guarantee 
to  his  family  an  income  of  $100  a  month, 
but  his  means  won't  permit.  He  can, 
however,  provide  $50  a  month. 

If  we  increase  the  rent  to  $25  (Budget 
No.  1),  we  see  that  the  total  for  rent  and 
food  (three  persons)  is  $59  a  month.  The 
$50-a-month  insurance  income  will  almost 
pay  for  groceries  and  rent,  according  to 
this  budget.  If  the  father  must  face  the 
fact  that  his  wife  and  children  will  be 
obliged  to  earn  something,  what  a  satis- 
faction it  will  be  to  know  that,  at  any 
rate,  it  will  be  necessary  for  them  to  earn 


THE  HOUSE  OF  PROTECTION       127 

only  $50  a  month  instead  of  $100  a  month; 
or,  to  put  it  another  way,  that  instead  of 
being  forced  to  live  on  whatever  they  can 
earn— perhaps  $50,  $60,  or  $75  a  month— 
they  will  have  $100  a  month,  even  if  they 
can  earn  only  $50. 

The  same  idea  holds  good  for  smaller 
incomes.  An  insurance  income  of  $20 
or  $25  a  month  will  provide  the  minimum 
for  rent.  If  this  is  all  the  husband  or 
father  can  do  for  his  family,  it  is  well 
worth  doing.  Rent  is  the  first  funda- 
mental need  to  be  provided.  With  the 
rent  guaranteed,  the  mother's  problem  of 
keeping  her  children  together  and  making 
a  home  for  them  will  be  greatly  simplified 
by  the  monthly-rent  policy.  The  amount 
to  be  earned  by  herself  and  the  children 
will  thus  be  materially  reduced. 

Short-term  Incomes 

Sometimes  a  man  finds  that  even  by 
making  heroic  efforts  to  make  his  life- 
insurance  savings  as  large  as  possible,  he 
cannot  secure  enough  to  provide  a  suffi- 


128      THE  HOUSE  OF  PROTECTION 

cient  life  income  for  his  wife,  say,  $200  a 
month.  His  children  are  ten  and  twelve 
years  old.  He  finds  he  can  provide  a  life 
income  of  $100  a  month  for  his  wife  and 
an  additional  income  of  $100  a  month  for 
ten  years  for  the  support  of  the  children. 
Even  if  he  dies  immediately,  his  wife  will 
have  an  income  of  $200  a  month  until  the 
children  are  twenty  and  twenty-two  years 
old,  and,  thereafter,  a  life  income  of  $100 
a  month.  Likewise,  a  total  income  of  $100 
a  month  could  be  provided  to  run  until 
his  children  were  grown,  with  $50  or  $60 
a  month  continued  permanently  for  his 
wife.  An  almost  endless  variety  of  income- 
insurance  combinations  makes  it  possible 
for  the  underwriter  to  effect  a  practical 
adjustment  between  the  client's  needs  and 
his  ability  to  save  for  his  insurance 
premiums. 

No  matter  whether  you  are  earning 
$2,000  or  $50,000  a  year,  you  will  find  it 
most  helpful  to  make  up  a  minimum 
budget  for  your  family's  insurance  needs. 
It  will  give  you  a  different  idea  of  your 
insurance  requirements  from  any  you 


THE  HOUSE  OF  PROTECTION       129 

have  ever  had  before.  And  if  you  find 
you  can't  provide  the  amount  of  insurance 
income  your  family  will  need,  the  budget 
will  help  you  to  see  just  what  the  amount 
which  you  can  afford  will  accomplish. 


THE  END 


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